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3 Feb 2026·Source: The Hindu
4 min
EconomyScience & TechnologyNEWS

Funding Model Needed to Sustain Free UPI Services: Experts

Industry experts advocate for a funding framework to maintain free UPI services.

Funding Model Needed to Sustain Free UPI Services: Experts

Photo by JAFFAR SATHICK

Industry officials emphasize the need for a funding framework to keep UPI free for the majority of users. With UPI handling about 21 billion transactions every month, it has become a crucial financial infrastructure. While person-to-person transactions continue to be free, and small and micro-merchants remain exempt from charges, a long-term funding framework is essential for sustainability. Vishwas Patel, chairman of the Payments Council of India, stated that UPI has reached a level where sustainability and reliability must be treated as system priorities. He added that keeping UPI free for consumers and small merchants is essential and should not change. A differentiated approach that recognizes the role of large, high-volume merchants can help strengthen the ecosystem without compromising inclusion. UPI enables merchant transactions, mandates, credit-linked products, recurring payments, and early-stage cross-border use cases.

Key Facts

1.

UPI transactions: 21 billion per month

UPSC Exam Angles

1.

GS Paper 3 (Economy): Digital payments, financial inclusion, role of NPCI

2.

Connects to syllabus topics like banking, payment systems, government initiatives

3.

Potential question types: Statement-based, analytical questions on UPI's impact

Visual Insights

UPI Transactions Overview (February 2026)

Key statistics on UPI transactions, highlighting its importance and sustainability challenges.

Monthly UPI Transactions
21 Billion

Indicates the scale of UPI's adoption and its critical role in the Indian economy.

More Information

Background

The Unified Payments Interface (UPI) has revolutionized digital transactions in India. Its origins can be traced back to the efforts to create a seamless and interoperable payment system. The initial groundwork was laid by the National Payments Corporation of India (NPCI), which was established to consolidate and integrate various payment systems. UPI's development involved several key milestones. The Reserve Bank of India (RBI) played a crucial role in providing the regulatory framework and support for the development of digital payment infrastructure. The launch of UPI in 2016 marked a significant turning point, offering a user-friendly and efficient way to conduct transactions. Over time, UPI has undergone continuous enhancements and upgrades to improve its functionality and security. The legal and constitutional framework supporting UPI includes various provisions related to banking and financial regulations. The Payment and Settlement Systems Act, 2007 provides the necessary legal backing for the operation of payment systems like UPI. Additionally, the RBI's powers under the Reserve Bank of India Act, 1934 enable it to regulate and supervise payment systems to ensure their stability and integrity.

Latest Developments

Recent government initiatives have focused on promoting the adoption of UPI in both urban and rural areas. The Digital India initiative has played a significant role in driving the growth of digital payments, including UPI. Incentives and awareness campaigns have been launched to encourage consumers and merchants to use UPI for their transactions. There are ongoing debates about the optimal funding model for UPI to ensure its long-term sustainability. Different stakeholders, including banks, payment service providers, and merchants, have varying perspectives on how the costs of operating UPI should be shared. The Payments Council of India (PCI) is actively involved in discussions to find a balanced and equitable solution. The future outlook for UPI is positive, with expectations of continued growth and innovation. The government aims to further expand the reach of UPI to include more users and use cases. Emerging technologies like blockchain and artificial intelligence could potentially be integrated with UPI to enhance its security and efficiency.

Frequently Asked Questions

1. What key facts about UPI are important for the UPSC Prelims exam?

For UPSC Prelims, remember that UPI handles approximately 21 billion transactions every month. It is managed by the National Payments Corporation of India (NPCI). Also, note that industry experts are discussing funding models to keep UPI free for users.

Exam Tip

Focus on the number of transactions and the role of NPCI.

2. What is UPI and why is it important for the Indian economy?

UPI, or Unified Payments Interface, is a real-time payment system that facilitates instant fund transfers between two bank accounts via a mobile platform. It's important because it has revolutionized digital transactions in India, making them more accessible and efficient. It also supports the Digital India initiative.

3. Why is the funding model for UPI being discussed now?

The funding model for UPI is being discussed because industry officials believe a sustainable framework is needed to maintain free UPI services for the majority of users, especially with UPI handling about 21 billion transactions monthly. Experts like Vishwas Patel emphasize the need to prioritize sustainability and reliability.

4. What are the pros and cons of charging large merchants for UPI transactions?

Charging large merchants could provide a funding source for UPI infrastructure, ensuring its sustainability. However, it could also increase costs for businesses and potentially discourage UPI adoption among them. A balanced approach is needed to avoid harming small merchants and consumers.

5. What recent government initiatives have promoted UPI adoption?

Recent government initiatives, under the Digital India initiative, have focused on promoting UPI adoption in both urban and rural areas. These include incentives and awareness campaigns to encourage consumers and merchants to use UPI for transactions.

6. Explain the role of NPCI in the context of UPI.

The National Payments Corporation of India (NPCI) played a crucial role in developing UPI. It was established to consolidate and integrate various payment systems in India, creating a seamless and interoperable payment infrastructure. NPCI is the key organization behind the success of UPI.

7. What reforms are needed to ensure the long-term sustainability of UPI, according to experts?

Experts suggest a differentiated approach to funding, potentially involving charges for large, high-volume merchants while keeping person-to-person transactions and small merchant transactions free. This approach aims to strengthen the ecosystem without burdening consumers and small businesses.

8. What is the historical background of UPI's development in India?

UPI's origins can be traced back to efforts to create a seamless and interoperable payment system. The initial groundwork was laid by the National Payments Corporation of India (NPCI), which was established to consolidate and integrate various payment systems.

9. How does the debate around UPI funding impact common citizens?

If a sustainable funding model is not established, there is a risk that UPI services may no longer remain free for all users. This could increase the cost of digital transactions for common citizens, especially if charges are introduced for person-to-person transactions or small merchant payments.

10. According to Vishwas Patel, what is essential for UPI now?

According to Vishwas Patel, chairman of the Payments Council of India, sustainability and reliability must be treated as system priorities for UPI. He emphasizes that keeping UPI free for consumers and small merchants is essential and should not change.

Practice Questions (MCQs)

1. Consider the following statements regarding the Unified Payments Interface (UPI): 1. UPI is developed and maintained by the Reserve Bank of India (RBI). 2. UPI facilitates only person-to-person (P2P) transactions. 3. As per the news, UPI handles approximately 21 billion transactions every month. Which of the statements given above is/are correct?

  • A.1 and 2 only
  • B.3 only
  • C.2 and 3 only
  • D.1, 2 and 3
Show Answer

Answer: B

Statement 1 is INCORRECT: UPI is developed and maintained by the National Payments Corporation of India (NPCI), not the RBI. Statement 2 is INCORRECT: UPI facilitates both person-to-person (P2P) and person-to-merchant (P2M) transactions. Statement 3 is CORRECT: The news explicitly mentions that UPI handles about 21 billion transactions every month.

2. Which of the following statements best describes the role of the Payments Council of India (PCI) in the context of UPI?

  • A.It is the regulatory body that oversees all UPI transactions.
  • B.It is primarily responsible for developing the UPI technology.
  • C.It is actively involved in discussions to find a balanced funding model for UPI.
  • D.It provides direct financial support to UPI users.
Show Answer

Answer: C

The Payments Council of India (PCI) is actively involved in discussions to find a balanced funding model for UPI, as mentioned in the news. It represents the interests of various stakeholders in the payments ecosystem. Options A, B, and D are incorrect as they do not accurately reflect the PCI's role.

3. The Payment and Settlement Systems Act, 2007, is related to which of the following?

  • A.Regulation of the stock market
  • B.Legal backing for the operation of payment systems like UPI
  • C.Regulation of foreign exchange reserves
  • D.Establishment of banking ombudsman
Show Answer

Answer: B

The Payment and Settlement Systems Act, 2007 provides the necessary legal backing for the operation of payment systems like UPI. This act empowers the RBI to regulate and supervise payment systems in India. The other options are related to different aspects of financial regulation.

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