UPI (Unified Payments Interface) has made digital transactions in India faster and easier and has become India’s leading mobile-based real-time payment system, enabling instant personal and merchant transactions. It handles over 75% of the country’s digital payments, with 14 billion transactions in May 2024 alone.
As a core part of India’s digital economy, UPI’s design lets over 77 mobile apps and 550 banks work together smoothly. Managed by the National Payments Corporation of India (NPCI) and regulated by the Reserve Bank of India (RBI), UPI supports more than 350 million users and 340 million merchant QR codes across the country. UPI’s flexibility makes payments easy for millions of people with mobile phones. However, a recent survey by LocalCircles shows that most UPI users would stop using it if a transaction fee is introduced. The survey, which got responses from 42,000 people across 308 districts, reveals how such a fee could affect UPI’s future in India.
The LocalCircles survey found that 75% of UPI users would stop using the platform if any kind of transaction fee was added. UPI has become a preferred payment method for many, overtaking debit and credit cards. About 38% of users said that more than half of their transactions are done through UPI, showing how important it has become for daily payments.
Only 22% of UPI users said they’d be okay with paying a transaction fee, showing strong opposition to such a charge. The question about fees received 15,598 responses, indicating high user concern.
UPI Growth and Impact:
UPI has grown rapidly over the past year. The National Payments Corporation of India (NPCI) reported a 57% increase in the number of UPI transactions and a 44% rise in the value of those transactions for the 2023-24 fiscal year compared to the previous year. For the first time, UPI transactions crossed 100 billion, closing at 131 billion for the year. The total value of these transactions reached ₹199.89 trillion, up from ₹139.1 trillion the previous year.
The survey found that 37% of respondents said UPI transactions account for over half of their total payment value, highlighting the platform's growing importance in everyday financial activities.
User Resistance to Fees:
The survey shows strong resistance among the customers to the idea of UPI transaction fees. Since UPI has become an integral of the payment system for many people, introducing any direct or indirect charge would discourage its usage. LocalCircles, the organization that conducted the survey, plans to share these survey results with the Ministry of Finance and the Reserve Bank of India (RBI) to make sure that users' views are considered before any decision is made about fees.
Currently, UPI operates without a fee for users, which has been a crucial factor in its rapid growth. While the NPCI has suggested introducing a Merchant Discount Rate (MDR) for some transactions, users are not in favor of it. Any move to introduce fees could potentially push users back to traditional methods of payment, such as cash or card transactions.
The Importance of UPI for Digital Payments:
UPI has played a major role in promoting digital payments in India. Its easy-to-use interface and ability to work across multiple banks and apps have made it popular among both consumers and merchants. The government and financial institutions have encouraged its use as part of the push toward a cashless economy. UPI has also helped include more people in the digital payment system, giving access to those who may not have had traditional banking services.
Introducing a transaction fee could slow down this progress. Many people who use UPI for small, everyday payments may not want to pay extra charges, which could lead to a drop in UPI usage.
The LocalCircles survey clearly shows that UPI users are against transaction fees. With UPI becoming such an important tool for daily payments, adding a fee could undo much of the progress made in promoting digital payments. The fees could push users away from UPI, affecting both convenience and the goal of a cashless economy.
The reluctance of 75% of UPI users to accept transaction fees reflects a broader sentiment around free, easily accessible digital financial services. For many users, UPI has become an indispensable tool for daily financial interactions, from purchasing groceries to paying for utilities or even transferring money to friends and family. It’s more than just convenience—it's now embedded in the very fabric of modern Indian society. Introducing fees, even if minimal, may result in a significant backlash, and not just in the short term.
Impact on Financial Inclusion
One of UPI's most powerful achievements has been its role in promoting financial inclusion. Millions of people who previously had limited access to formal banking systems were able to enter the digital economy through UPI. For those living in rural areas, small business owners, and the unbanked population, UPI provided a platform that was both secure and free.
Introducing transaction fees could erode this progress. Many users, particularly those with lower incomes, are highly sensitive to additional costs. Even a nominal fee per transaction could deter this demographic from using UPI, forcing them to revert to cash or other non-digital methods of payment. This would be a significant setback for India’s broader financial inclusion goals, as digital transactions provide transparency, security, and ease of financial management, especially for those previously excluded from the formal banking sector.
Moreover, the move to charge fees on UPI transactions could have broader repercussions. It may slow down innovation in the fintech space, as platforms and businesses built around UPI may see reduced user engagement. As digital payments continue to evolve globally, it’s crucial that India’s leading platform remains competitive by retaining its core strengths: affordability, ease of use, and widespread accessibility.
While the introduction of transaction fees might seem like a natural step toward sustaining UPI's infrastructure, the potential downside far outweighs the benefits. Policymakers need to carefully weigh these considerations, as maintaining UPI's fee-free structure could be key to sustaining the growth of India's digital economy and ensuring that no one is left behind. By focusing on affordability and inclusivity, UPI can continue to empower millions of users and remain at the forefront of India's financial revolution.
