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The pace of digital payments in India has accelerated significantly in the past few years. However, ahead of Budget 2026, a new reality regarding UPI is emerging, sparking debate...

What's the real cost of free UPI? RBI warning and Budget 2026 decision: Learn the details.

Digital Payment Future India: The pace of digital payments in India has accelerated significantly in the past few years. Today, UPI usage has become commonplace everywhere, from tea shops, auto fares, electricity bills, and mobile recharges to high-end shopping. QR codes are now not just a convenience, but a means of freedom from cash.

But ahead of Budget 2026, a reality regarding UPI is emerging, sparking debate. This issue concerns the future of the free digital payment model. The impact of the government's decision could impact the common man in the future.

UPI gains traction, but merchant network remains limited

UPI now powers a significant portion of digital payments in the country. Approximately 85% of all digital transactions are conducted through UPI. Statistics show that in October alone, over 20 billion transactions were processed, amounting to approximately ₹27 lakh crore. These figures demonstrate how rapidly UPI has become a part of people's everyday lives.

However, amidst these strong statistics, a challenge also emerges. According to the data, only about 45% of merchants are regularly accepting UPI payments. Surprisingly, nearly one-third of the country's pincodes have fewer than 100 active UPI merchants, even though these areas likely have a higher number of merchants.

Increasing economic pressure on the free UPI model

According to a report in The Economic Times, UPI's biggest challenge is its complete free payment. Currently, merchants are exempt from any MDR (Main Draw Fee) charges, to facilitate small businesses. However, each UPI transaction costs approximately ₹2, which is borne by banks and fintech companies.

The government allocated ₹3,900 crore to support digital payments in 2023-24. However, this funding decreased to just ₹427 crore in 2025-26. Furthermore, the total cost of operating the UPI system could reach ₹8,000 to ₹10,000 crore in the next two years. This is why questions are increasingly being raised about the future of free UPI.

RBI warning 

The RBI Governor has clearly stated on this issue that it's not always possible to run UPI for free. Someone will have to bear the costs of this process. Meanwhile, companies have stated that a lack of funds is hindering the rollout of new features and strengthening the system. They are also facing difficulties in expanding UPI to remote villages. 

Decision may be taken in Budget 2026

Budget 2026 may decide whether UPI will remain completely free or whether a new approach will be adopted. One option is that the government could continue the free model by providing higher subsidies.

So that ordinary people and small businesses are not burdened. Another approach could be that the government could gradually move towards making UPI self-sufficient by implementing a limited MDR.