As the government reduces financial support for UPI transactions and RuPay debit card payments, popular UPI apps have begun charging convenience fees on certain transactions. This shift comes as payment platforms look for new ways to sustain their businesses and generate revenue.
Declining Government Support
The government had been providing incentives to payment service providers (PSPs) and third-party application providers (TPAPs) to encourage digital transactions. However, the budget allocation for these incentives has been significantly reduced. It dropped from ₹2,484 crore in FY24 to ₹2,000 crore (revised estimate) for FY25 and is expected to further decline to ₹437 crore for FY26.
With this sharp reduction in funding, UPI platforms have been forced to rethink their business models. As a result, they are now introducing convenience fees on specific transactions, such as bill payments for electricity, cooking gas, and credit cards. However, UPI transactions that are directly linked to bank accounts remain free.
Why Are UPI Apps Charging Fees?
Currently, PSPs and TPAPs earn only 0.05% (5 basis points) of each transaction, which is divided between them. Meanwhile, banks keep most of the interchange fee, which can go up to 0.25% of the transaction value. This limited earning potential, combined with the decline in government reimbursements, has pushed payment platforms to explore additional revenue sources.
Alternative Revenue Streams
In addition to charging convenience fees, UPI apps have started offering financial products to boost revenue. Many platforms now earn commissions from selling:
- Insurance policies
- Mutual funds
- Loans
- Travel bookings
This diversification has helped UPI platforms increase their operational revenue. For instance, PhonePe’s revenue surged by 74% in FY24, reaching ₹5,064 crore, while its losses shrank to ₹1,996 crore, down from ₹2,795 crore in FY23.
Challenges Ahead
Despite these efforts, monetization remains a challenge for UPI apps. Banks continue to dominate earnings from digital transactions, and direct bank-linked UPI payments are still free for users. Additionally, changing regulations could further impact how these platforms generate revenue.
As government incentives decrease, UPI apps must find sustainable ways to maintain profitability. Whether through convenience fees, financial product sales, or other strategies, the future of digital payments in India is set to undergo significant changes.
