Parliamentary panel flags need for viable revenue model to sustain UPI growth

A Parliamentary panel has highlighted a structural funding gap in the government’s incentive scheme for RuPay debit cards and low-value BHIM-UPI person-to-merchant (P2M) transactions, urging the need for a sustainable revenue model to ensure the long-term growth of the UPI ecosystem.

The Standing Committee on Finance noted that while the government has allocated ₹2,000 crore for 2026-27 to offset ecosystem costs arising from the zero-merchant discount rate (MDR) policy on RuPay and low-value UPI transactions, the current support covers only 11% of the actual costs incurred by the digital payments industry and about 14% of potential MDR collections.

The panel observed that India’s UPI system is expected to expand significantly in the coming years, potentially handling 100–150 billion transactions per month and adding up to 600 million new users, including smartphone and feature-phone users.

While the Committee acknowledged that the proposed multi-year incentive scheme and cashback components could help expand digital payments in Tier-3 to Tier-6 cities, it recommended that the Department of Financial Services explore a self-reliant, tiered revenue model.

Such a mechanism, the panel noted, would be critical to sustaining UPI’s financial viability without placing a continuous burden on the government exchequer.

The incentive scheme, introduced in FY2021-22, provides banks and payment ecosystem participants with rewards linked to the value of RuPay debit card and low-value UPI transactions processed on their platforms. The panel’s report underscores the need for a balanced approach that supports ecosystem growth while ensuring long-term sustainability.