UPI Charges in 2025: Why Banks Should Bear the Cost, Not Users

The Unified Payments Interface (UPI) has been one of the most revolutionary developments in India’s digital finance landscape. But recent remarks from the Reserve Bank of India (RBI) Governor have sparked concerns. He hinted that UPI may not remain free forever, raising questions about who should ultimately foot the bill for this infrastructure.

Many experts warn that charging users directly for UPI could backfire - possibly stifling the very innovation that has helped India leapfrog into a digital-first economy. There’s a strong case to let banks absorb these costs instead, using the income they already generate from charges like minimum average balance (MAB) penalties.

The UPI Growth Story

To understand UPI’s impact, one needs only to look at the numbers.

• In June 2017, monthly UPI transactions stood at just ₹3,098 crore.
• By June 2021, they had surged to ₹5.47 trillion.
• Fast forward to June 2025, and that figure has ballooned to ₹24.04 trillion.

This isn’t just impressive - it’s transformative. Today, UPI accounts for a staggering 83% of fund transfer volumes in India. And much of this has happened with zero direct charges to users.

This growth has been enabled by several factors: smartphone penetration, affordable internet, Aadhaar-linked verification, and government support. But the policy of keeping UPI free for users has been central. Introducing fees now risks undoing much of the progress made.

Beyond Just Fund Transfers

The benefits of UPI go far beyond the sheer volume of transactions.

1. Increased Transparency
   UPI allows the government to better track business activity, which helps reduce cash-based leakages and improve tax compliance.
2. Financial Inclusion
   Millions of Indians now send small-ticket payments easily and safely - thanks to UPI's simplicity and zero cost.
3. Ease of Use
   Unlike NEFT or RTGS, UPI transactions are ID- or QR-based. There are no bank codes or IFSCs to remember, which makes the system remarkably user-friendly.
4. Capital Market Efficiency
   UPI has even improved IPO and stock market processes, enabling real-time fund blocking and seamless participation.

The Cost Question

While users enjoy zero-fee transfers, running the UPI infrastructure isn’t free. The backbone involves both bank networks and payment gateways. From 2018 to 2023, the Indian government spent approximately ₹3,700 crore to subsidize banks for providing UPI services.

Unlike credit cards, there is no Merchant Discount Rate (MDR) allowed on UPI. This means neither users nor merchants pay a fee, yet banks must still handle the backend costs.

The RBI Governor’s recent comments suggest this model may not be sustainable forever. One proposal is to begin charging for high-value UPI transactions, while keeping low-ticket payments free. However, this opens a political and public backlash risk.

Charging Users Could Backfire

To quote the RBI Governor’s sentiment: charging for UPI would be like “killing the goose that lays the golden eggs.” UPI has brought enormous societal and economic benefits. Adding fees - even selectively - could cause users to revert to cash or less formal channels, especially for microtransactions.

Moreover, it could slow digital adoption just when India’s financial inclusion drive is gaining momentum. The trust and ease associated with UPI are too valuable to jeopardize.

A Smarter Alternative: Use MAB Charges

Here’s a practical solution: let banks cover UPI costs using the revenue they already earn through MAB penalties and similar charges.

From 2018 to 2023, large Indian banks collected ₹35,800 crore from minimum balance penalties, ATM fees, and cheque book charges. That’s nearly ten times the total UPI subsidy cost.

Redirecting just a portion of these collections to support UPI would keep the system free for users while ensuring sustainability. Additionally, proceeds from corporate debt resolutions under the NCLT could be partly allocated to a UPI Support Fund, especially since these defaults add stress to the banking system in the first place.

Conclusion

UPI is not just a financial product - it’s a public utility. Its zero-cost, instant, and reliable structure has redefined how India transacts. The economic and social returns have been tremendous, especially for lower-income and rural users.

Instead of shifting the burden to consumers, the system’s sustainability can be managed by smarter internal cross-subsidization within the banking ecosystem. UPI must remain free for users. The value it brings is too important to compromise.

Disclaimer: This article is for informational purposes only. It does not constitute financial or regulatory advice and reflects analysis based on publicly available data and expert commentary.