RBI Governor Flags Long-Term Viability Concerns For Free UPI Model

New Delhi, Aug 6 (KNN) Reserve Bank of India (RBI) Governor Sanjay Malhotra has clarified that while digital payments via the Unified Payments Interface (UPI) currently remain free for users, the model may not be sustainable without a clear mechanism to cover underlying costs. 

His remarks come amid renewed debate over the long-term viability of a no-cost digital payments ecosystem in India.

Speaking at the RBI’s Monetary Policy Committee (MPC) meeting on August 6, Malhotra underscored that UPI transactions are not inherently free and that someone is already bearing the cost of maintaining the infrastructure. 

“I never said that it can remain free forever,” he said, in response to a query on whether charges like the merchant discount rate (MDR) might eventually be passed on to users.

MDR refers to the fee levied by payment processors on merchants for accepting digital transactions. 

While the government has so far subsidised UPI to maintain zero-cost usage, Malhotra pointed out that this may not continue indefinitely.

“There are costs, and these costs have to be paid by someone. Who pays is important but not as important as the fact that someone is footing the bill,” the governor said, adding, “My sense is that it is not free even now. The government is subsidising it, but somewhere, the costs are being paid.”

Malhotra clarified that he has never suggested consumers would directly be charged for UPI transactions. Rather, he emphasised that decisions around pricing, subsidies, and future funding models fall under the purview of the finance ministry.

His comments come as reports indicate that some banks have begun imposing fees on select UPI transactions routed through payment aggregators or involving specific merchant categories, raising concerns about the sustainability of the zero-fee model.

(KNN Bureau)