UPI Transaction Fees: Chaos Ensues if UPI is Taxed! Survey Reveals 70% of Users Could Abandon Digital Payments.

If transaction fees were to be imposed on UPI, approximately 75 percent of users in India would stop using the platform. This was revealed in a survey conducted by LocalCircles.

UPI Transaction Fees: We are living in the era of digitalization. Almost every task is now accomplished online with the mere push of a button. Even payments are increasingly being made online. From buying vegetables to paying utility bills, people have started using UPI everywhere. In today’s times, we use UPI to pay for every small item and daily necessity. But what would happen if a transaction fee were levied on UPI?

Shocking Revelation from the Survey

A survey has revealed that if transaction fees are imposed on UPI, approximately 75 percent of users in India would cease using the platform. This signals a potential threat to the country’s rapidly expanding digital payment ecosystem. The survey highlights the extent to which users value free payment services—even as UPI inches closer to its target of processing one billion transactions daily.

The LocalCircles survey found that if fees were to be imposed on UPI, only 25 percent of users would continue to use the service. The survey also indicated that opposition to such fees has intensified compared to 2025; at that time, 73 percent of people had opposed the imposition of transaction fees.

Demand for Imposing MDR

The Payments Council of India (PCI) has proposed levying a Merchant Discount Rate (MDR) of 0.3 percent for large merchants. In essence, a debate is currently underway within the fintech sector regarding the sustainability of a “zero-MDR” regime versus the need for business stability. Securing the millions of transactions processed daily via UPI entails significant technological expenditure. However, sustaining these costs over the long term—without any revenue generation or MDR—proves to be a formidable challenge. Companies such as Google, PhonePe, and Paytm do not generate any direct revenue from UPI transactions. Consequently, under pressure from investors, these companies are now expected to move towards profitability, specifically through the implementation of MDR (Merchant Discount Rate). However, the PCI (Payments Council of India) maintains that the burden of a 0.3% MDR should not be passed on to ordinary consumers but should instead be limited to large businesses. This approach would yield two key benefits: firstly, it would attract fresh investment into the digital payments ecosystem; and secondly, it would facilitate the development of new technologies.

The Government’s Stance

The government has termed reports regarding the imposition of transaction fees on UPI as misleading and baseless. The government’s primary objective is to promote the digital economy; to this end, a ‘Zero MDR’ policy has been in effect for UPI and RuPay debit cards since 2020.