UPI must remain free for all, Middle Class too deserves some freebies

The possibility of MDR, aka a small fee on UPI transactions, has been raised again by the government. It is also without any logic because logic dictates that UPI transactions must remain for all, from users to merchants.UPI should remain free for all, including users and merchants.Not everything is dysfunctional socialism. Not everything needs to earn a profit. Not everything has a cost that a government must pass on to people. UPI is one such service, a public utility that must remain free. In the last one decade, UPI has become the backbone of digital transactions in India, with everyone from a poor peanut-seller to five-star hotels accepting payments through a quick QR code scan. It must remain so. And it can remain so only if it continues to be free to use for everyone, from the corner paanwala shop to that Uniqlo store in the swankiest mall in your city.Anything else is illogical. Any MDR — merchant discount rate — or any other form of fee either from UPI users or merchants that use UPI is a brainless idea. The arguments in support of a small fee may seem as if they are based on some reasoning, but they are not. They are simply based on that mentality that veers towards maximum profit, that desire to earn more and more, to seek rent that is the hallmark of financial markets. Or as financial historian Edward Chancellor once wrote, “Wall Street uses other people’s money, and the less it pays for this use, the greater its profit.”But I am rambling. So let me take a step back and make my case with some coherence, with facts, and with logic.If you have seen news in the last couple of weeks, you must be aware that a chorus is growing. There are business consultants, government officials, bank execs, and payment experts arguing that UPI has become too big, and too important, to remain free for use. The argument is that someone, somewhere needs to pay for a payment system that handles hundreds of millions of transactions on a daily basis. Because running UPI needs people, IT infrastructure, cybersecurity experts, and associated expenses. All of this is accurate. Someone must pay for it. But UPI users, whether the ones making the payment or the ones accepting it, cannot be this “someone.”That is because the proponents of the fee on UPI are looking at its cost. A country like India, and its government, must look at its benefits.The cost of keeping UPI running Let’s talk about the cost first. UPI, aka Unified Payment Interface, was launched by banks in 2016. For the purpose, the banks used National Payments Corporation of India, an entity blessed by the RBI, although majorly it is a body where both private and public banks are stakeholders.Banks did not create UPI out of the goodness of their hearts. There is a reason why NPCI came out with UPI. The immediate trigger was the popularity of digital wallets that tech companies like Paytm and PhonePe created. The simplicity of wallets meant their use spread like wildfire. Banks saw it as a threat to their monopoly on monetary transactions. UPI was their answer. It was also blessed by the RBI and government, which too were wary of tech companies entering a space where the government had tight control. This blessing meant that in no time, UPI found a foothold among Indians.Since then, NPCI, with help from the RBI, has managed the UPI network. It is a vast network and it does cost some money. But how much? We don’t yet have the balance sheet of NPCI for the year 2025-26. But we do have it for 2024-25. According to an analysis done by IIM Bengaluru researchers Balakrishnan Mahadevan and Srinivasan R, it cost NPCI Rs 2270 crore to manage its entire operations in that financial year. Printing notes and minting coins has a cost. (Photo: Reuters) The cost for only UPI was much lower given the fact that almost 50 per cent of total NPCI expense was marketing expense. The rest 50 per cent was divided between managing other modes of payments as well, and not just UPI. According to an analysis done by Zerodha, the infrastructure cost of managing UPI was around Rs 500 crore in 2025.In addition to this, there is undoubtedly some cost that is borne by banks and payment apps like Google Pay and Paytm that are part of the UPI network. Although, they also earn money from their apps through advertisements and various third-party integrations.Here is another interesting part: even though different entities — including NPCI — are spending money on UPI network, they are also getting compensated by the government that until now has opted to keep the payment network free for users. For example in the latest 2026 budget, the government allocated around Rs 2000 crore for subsidising the UPI network through various means.The benefits of UPIWhen there is a cost and benefit analysis, often there is a cliched quote that McKinsey analysts introduce into the conversation. There is no free lunch. Its origins are a mystery, but the phrase was popularised by Milton Friedman, the man who elevated money and markets to godly status. Well, it is true that there is no free lunch. But in the case of UPI it is worth taking a look at who is actually eating the lunch.UPI is arguably the biggest payment network not just in India but globally, used by hundreds of millions of users to carry out transactions that range from Re 1 to lakhs. These transactions happen digitally, which means they eliminate the kind of logistics that banks, NCPI and the Indian government would find costly as well as significantly complex to manage.With every transaction that happens through UPI, the RBI saves money because it can then mint and print fewer coins and notes. With every transaction that takes place through UPI, banks save cost on running ATMs and teller operations. These cost savings are not insignificant. In fact, they are sizeable, precisely the reason why neither the Indian government nor the consultants pushing for MDR in UPI want to talk about them.According to an RTI reply that India Today received in response to an application in 2018, the RBI was then spending between Rs 1 to Rs 4 on printing each currency note depending on its denomination. That cost now must have gone up. The cost of minting coins, meanwhile, has been estimated to be slightly higher because it needs metal. This cost, again in 2018, was little over Re 1 for one rupee coin to little over Rs 5 for the ten rupee coin. Given the metal prices nowadays, it would be significantly more.Around a decade ago it was estimated that it cost on average Rs 15 for banks for each ATM transaction. That is because ATMs need to be installed and maintained, the cost or rent of land on which they operate needs to be paid, and then subsequently they need to be serviced and kept operational. Since then, this cost too has gone up, although the exact figures are not available in public domain. And it is possible that the cost is different for each bank.In 2025 the RBI mandated that banks can levy a charge of up to Rs 23 per ATM transaction once a consumer has exhausted their limit of free monthly ATM transactions. This gives an indication of the cost that a bank incurs on every ATM transaction. It must be somewhere around that Rs 23.It is not that only consumers and merchants benefit from UPI. Banks, NCPI, and the RBI too benefit greatly. And so does the government because it too can save the cost on logistics of managing and tracking cash throughout the economy. This is probably the reason why, despite supposedly onerous UPI costs, the NCPI is wildly profitable. In financial years 2024-25, it declared a profit — it calls it revenue surplus — of over Rs 1500 crore.But not everything is profit and loss. Sometimes, there is also public utility, which may not show up in a balance sheet but which is strategically important for a country. On this count alone, UPI must remain free, because it is this “free” that has let it grow popular and hence usable.For a country like India, which seeks sovereignty, a nationwide payment system like UPI and RuPay has immense strategic value. Otherwise, in the moment of crisis India would be at the same risk of financial blackmail that most countries face from the West, which runs the SWIFT network as well as the Visa and Mastercard systems. UPI and RuPay, although they may not provide an international shield to India, can enable Indians to make seamless digital payments within the national borders even if the country gets cut off from the international payment gateways.Middle Class too must have some freebiesThe proponents of fee and MDR on UPI transactions talk of logic, but the reality is that their arguments have little logic. So, let me move beyond logic. Because in India we have logic in low supply. That is why freebies and hundreds of kinds of subsidies, many unnecessary and wasteful, exist. The government often provides subsidies to society under various schemes. And if they can, so can a subsidised payment network. If this makes it any easier, consider a free UPI network a subsidy for the Middle Class, which tends to get the short stick whenever the government is doling out something.Let’s assume that UPI is a loss-making endevour for NPCI, banks, payment apps and others. Although, I believe it is not. But let’s assume that it is. Even then, the government ought to keep it free simply by subsidising it. It will cost the government peanuts compared to other subsidies it offers in the country.There are thousands of crores of rupees that the Indian government, as well as various state governments, spend each year on tens of schemes, some of them outlandish. Just before Maharashtra elections in 2024, when the state government came out with its budget, it provisioned for Rs 96,000 crore subsidies and direct cash transfers under various schemes.The kind of money that the Indian government spends on various schemes is manifold higher than the annual cost of keeping UPI free. Even if UPI costs money to stakeholders, the government can easily foot the bill. And likely with the money it collects from the Middle Class in form of tax, which it can do in a more efficient way when transactions are digital.The reason the government might still want MDR in UPI would be only because it sees an opportunity to milk the network, an opportunity because this would again involve milking the Middle Class — which merchants accepting UPI payments are. And when it comes to milking the Middle Class in India, the government always seems to find a way. Just like it is trying to do with a fee on UPI.- EndsPublished By: Armaan AgarwalPublished On: Aug 11, 2026 12:54 IST