India’s digital payment system UPI (Unified Payments Interface) reached a major milestone by crossing 700 million transactions in a single day on August 2, 2025, signaling rapid growth and strong adoption. In July 2025 alone, UPI recorded 19.47 billion transactions worth ₹25.1 lakh crore, moving the government closer to its ambitious goal of 1 billion daily transactions by 2026.
Growth Brings New Questions on Sustainability
While UPI remains free for users and merchants, the surge in usage has sparked a debate on the sustainability of this model. Banks, which manage the backend infrastructure, are beginning to push back on bearing the costs without compensation. Starting August 1, 2025, ICICI Bank introduced charges on payment apps like PhonePe and Google Pay. Yes Bank and Axis Bank have implemented similar fees. Merchants receiving settlements directly into ICICI accounts are exempt.
These charges are currently borne by payment apps rather than the end-users or merchants, but apps may pass these costs forward via reduced cashback offers or higher charges to merchants. This change could shift competitive dynamics among payment platforms, with apps owning banks, like Paytm, likely gaining an advantage.
What Are the New Charges?
ICICI Bank has introduced a small fee system:
- 2 basis points per transaction (maximum ₹6) for apps with ICICI-linked escrow accounts.
- 4 basis points per transaction (maximum ₹10) for those without such accounts.
- No charge for merchants who get settlements directly in ICICI accounts.
These charges are not directly applied to customers or merchants, but apps may pass on the cost later through fewer cashback offers or by charging merchants in the future.
RBI Governor’s Perspective: The Real Cost of UPI
Adding to this discussion, RBI Governor Sanjay Malhotra recently emphasised that UPI is not truly free—some party is always bearing the operational costs involved. The government currently subsidizes these expenses, but he made clear that this cannot continue indefinitely. Malhotra pointed out that banks have begun charging payment aggregators small fees to sustain the system’s operations. He stressed the importance of determining who ultimately pays to ensure UPI’s long-term sustainability as a critical digital payments infrastructure.
What This Means Going Forward
As UPI continues its impressive growth trajectory, questions about financing its ecosystem become increasingly important. NPCI (National Payments Corporation of India) has already approved nominal fees for some merchant transactions, indicating a move toward partial cost recovery. Without continued government subsidies, banks may continue to impose charges on intermediaries, potentially making UPI partially non-free for certain users or businesses in the future.
For now, UPI remains largely free for consumers, ensuring broad access and adoption. However, all stakeholders—including users, payment apps, banks, and merchants—should prepare for evolving costs and business models as the digital payments ecosystem matures to sustain its growth and reliability into the future.
