April 4, 2023

Can a small fee save UPI?  Study by IIT Bombay

According to a study by IIT Bombay, the government may take into account a 0.3% uniform digital payment facilitation fee to pay for the necessary infrastructure for such transactions and to guarantee the UPI payment system's financial viability. The study titled "Charges for PPI-based UPI payments—The Deception" claimed that the 0.3% facilitation fee can generate roughly Rs 5,000 crore in 2023–2024.


In recent years, the Unified Payments Interface (UPI) has emerged as the most popular digital payment system in India. It enables seamless transactions between different bank accounts, and the number of transactions through UPI has been consistently increasing. However, maintaining the UPI system requires substantial investments in infrastructure and technology. In this context, a recent study by the Indian Institute of Technology (IIT) Bombay has suggested that the government may consider imposing a 0.3% fee on UPI transactions to ensure the system's financial viability. This blog post explores the key findings and implications of the study.

Fee on UPI, NPCI, IIT Bombay study

The Need for a Sustainable UPI System:

The UPI system has been a game-changer in the Indian digital payments landscape. It has facilitated quick, convenient, and secure transactions, and the number of UPI transactions has increased from 2.6 billion in March 2020 to 3.3 billion in March 2021. However, the UPI system's sustainability is under threat due to the high costs of maintaining the infrastructure and technology. The system's financial viability depends on the revenue earned through transaction fees. Still, the fees charged by UPI service providers are meager, and they are not enough to cover the system's costs.

The IIT Bombay Study:

In this context, the IIT Bombay study has suggested that the government may consider imposing a 0.3% fee on UPI transactions to ensure the system's financial viability. The study estimates that such a fee can generate revenue of around INR 7,200 crore annually, which can be used to maintain and upgrade the UPI system's infrastructure and technology. The study also recommends that the fee should be shared among the stakeholders in the UPI ecosystem, including banks, payment service providers, and the National Payments Corporation of India (NPCI).

When using prepaid payment instruments to make payments through UPI to merchants, the NPCI introduced an interchange fee of 1.1% on the transaction amount with effect from April 1, 2023. These will apply to transactions made by UPI merchants using prepaid wallets.

The user of the prepaid wallet should be responsible for the operational costs rather than the merchants, which would create an unfair situation. This would prevent situations like passive smoking from ever occurring. By doing this, all UPI-based payments that merchants receive will remain clean and free of merchant discount rate burden (MDR)

The IIT Bombay study's recommendations have significant implications for the UPI ecosystem. The fee can ensure the financial sustainability of the UPI system, enabling investments in infrastructure and technology to improve the system's efficiency and security. The fee can also encourage more players to enter the UPI ecosystem, leading to more innovation and competition. Moreover, the fee's revenue can be used to support financial inclusion initiatives, such as the Jan Dhan Yojana and the Pradhan Mantri Mudra Yojana, and the government can use it to support the digital payments ecosystem's growth.


The UPI system has emerged as a critical enabler of India's digital economy, and ensuring its sustainability is crucial. The IIT Bombay study's recommendations can provide a viable solution to maintain and upgrade the UPI system's infrastructure and technology. However, the implementation of the fee requires careful consideration and consultation with all stakeholders to ensure that it does not have adverse effects on consumers and small businesses. Nevertheless, the fee can be a win-win for all stakeholders, ensuring the financial sustainability of the UPI system and supporting the growth of India's digital payments ecosystem.


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