No other payment method has been able to replace UPI (Unified Payments Interface) in India for years; small street vendors to big giants have had this method adopted as a mode of payment. Recent talks, however, do hint that soon UPI apps might have to get rid of the “free” tagline attached to them as they seem to be looking to transfer their costs to their customers.
Why the Change?
Thus far, the Indian government’s subsidy for UPI transactions below INR 2,000 has relieved a huge burden from the merchant as well as the user. But now, mostly peanut-sized, that subsidy will cease to exist and companies would be forced to look for other avenues of cost coverage. On this note, all UPI payment apps like Google Pay, Paytm, and PhonePe begin charging fees on certain transactions.
For example, Google Pay has started charging a fee of about 0.5%-1% on debit and credit card transactions. Paytm and PhonePe have also started charging fees for mobile recharges, among other services. It is a significant change to the otherwise completely free nature of UPI until now.
The Financial Burden
The subsidy provided by the government on UPI transactions has clearly been a massive financial endeavor. The government loses almost Rs 12,000 crore every year as expenses on Person-to-Merchant (P2M) transactions alone, with Rs 4,000 crore being the cost of transactions that are below Rs 2,000.
Here is the subsidy reduction:
- 2023: Rs 2,600 crore
- 2024: Rs 2,484 crore
- 2025: Rs 477 crore (Vigorous Cutting)
With subsidies being cut down, firms are trying to recover this cost from users, making UPI transaction fees a near reality.
Impact on Users
UPI has become an inseparable part of our daily lives. An average person does 60-80% of their transactions daily via UPI. Starting from mobile recharges and bill payments, UPI is being used for services as diverse as filling up gas in the car, metro rail card recharges, and even payment of insurance premiums.
If these fees are introduced, they may be a major turnoff for many customers, particularly people who do a small number of daily transactions using UPI. For some users, UPI is popular because it is free and simple to use. Any charges would then upset this balance and force users to reconsider their options.