Back

Free Payments for Us Big Losses for Them The UPI Puzzle UPI has become a daily part of life in India People use it everywhere from paying at a tea stall to buying groceries to transferring money to friends In July 2025 more than 15 billion transactions were made through UPI worth over 26 lakh crore rupees It feels perfect for users because it is free fast and reliable but for the banks and apps that run the system it is a different story every payment has a cost because they need servers security checks settlement systems and customer support on average each transaction costs about forty to fifty paise When this is multiplied by billions of payments the expense runs into hundreds of crores unlike card payments where merchants pay a fee UPI is mostly free because of government policy that has helped UPI grow but it leaves banks and fintech companies carrying the costs Banks accept this burden because they get indirect benefits A customer who uses UPI regularly no longer depends on ATMs or cheques which saves the bank money more importantly such customers stay connected with the bank digitally and are more likely to take loans use credit cards or invest through the same bank That is how banks make back some of the cost for fintech platforms like PhonePe, Google Pay and Paytm the challenge is bigger PhonePe handled more than 15 lakh crore rupees worth of payments last year but still posted losses of over 2000 crore rupees running a payment app requires heavy spending on technology and safety checks Since they cannot charge directly on UPI they try to earn by selling other services such as insurance mutual funds or tools for merchants Paytm already earns more than half of its income from these side services instead of UPI If we look at the numbers the problem becomes clear With 15 billion payments a month and a cost of about forty five paise per transaction the system costs around 675 crore rupees every month for banks and fintechs This is money that they do not recover directly NPCI which manages UPI kept the charges at zero to push digital adoption and that strategy worked because today UPI is the most widely used real time payment system in the world But the companies that keep it running continue to face losses The debate now is about the future Some people suggest that merchants could be charged a very small fee for high value payments Others feel the government should step in and cover part of the cost through subsidies another option is to build new products around UPI such as small loans premium features or investment options so that banks and apps finally earn something back UPI has made payments simple and affordable for millions of Indians and it has played a huge role in building the digital economy But it has also created a strange situation where users get a free service while the providers spend heavily to keep it alive The challenge ahead is to find a balance where UPI stays cheap and easy for people but also sustainable for the institutions that run it The way India solves this issue could become an example for many other countries planning their own digital payment systems.