Bill payments now chargeable through UPI: Short-term Negative, Long-term Positive

The recent shifts in India’s digital payments industry have sparked both excitement and debate. One of the biggest talking points is the recent introduction of convenience fees for bill payments via UPI, a move aimed at building a more sustainable digital economy.

UPI’s rise has been nothing short of extraordinary. Just in January 2025, the platform recorded a staggering 16.99 billion transactions, amounting to ₹23.48 lakh crore, reinforcing its role as a vital part of everyday financial life in India.

Naturally, this change has sparked intense discussions across the ecosystem. But what does it really mean for consumers, businesses, and fintech players? Let’s break it down.

The Success Story of UPI

UPI's initial goal as a digital public good was to drive digital payment adoption, a purpose it has largely fulfilled in both peer-to-peer (P2P) and peer-to-merchant (P2M) segments. The success is particularly noteworthy in the P2M space, where transactions are expected to account for 75% of all UPI transactions by 2025, up from the current 56.1% .

Further reinforcing this commitment, the Union Cabinet recently approved a ₹1,500 crore incentive scheme to promote BHIM-UPI transactions below ₹2,000 for FY 2024-25.  This move aims to enhance UPI penetration in tier-3 to tier-6 cities and rural areas by supporting innovative solutions like UPI Lite and UPI 123PAY.  By incentivizing small-value transactions, the government is ensuring broader adoption while addressing infrastructure challenges in remote regions.

However, with great success comes great responsibility. As UPI continues its upward trajectory, we face two critical challenges: managing scale and building last-mile penetration for P2M transactions. These challenges necessitate a shift in our approach to ensure UPI's sustainable growth.

The Imperative for Monetization

The current subsidy-based model is facing headwinds. Government support has seen a significant reduction, with funding for the RuPay and BHIM-UPI incentive scheme projected to decrease by 82% over two years, from ₹2,484.97 crore in FY 2023-24 to ₹437 crore in FY 2025-26 . This shift underscores the urgent need for a sustainable commercial model.

A Strategic Approach to Fees

Striking the right balance between accessibility and revenue calls for a thoughtful fee model. To ensure fair and effective pricing, I propose a nuanced approach to fees:

• P2P Transfers: Introduce a nominal flat fee for transactions above ₹25,000, keeping everyday transfers free.
• P2M Transactions: Classify into essential and non-essential services. Keep essential services free while applying a small Merchant Discount Rate (MDR) on non-essential transactions above ₹2,000. This MDR could be adjusted based on the nature of goods or services.
• Customer Experience: Maintain zero surcharges for P2M transactions to ensure continued adoption.
• Merchant Considerations: Exempt small merchants entirely, with medium-sized businesses only paying for transactions above the threshold.

Balancing Short-Term Challenges and Long-Term Benefits

Initially, we may see some user hesitation reminiscent of the introduction of ATM fees or e-commerce delivery charges. However, users typically adapt quickly when they recognize the value proposition.

Merchants can navigate this transition by implementing strategic pricing and targeted incentives. Exploring cashback on bill payments and loyalty programs can help maintain user engagement.

The long-term benefits of this approach are substantial. Monetization provides resources for enhancing infrastructure, bolstering cybersecurity, and developing innovative features. Imagine UPI apps with predictive expense management or real-time AI-driven fraud detection – advancements that require significant investment.

Contrary to concerns, a well-structured fee system can promote financial inclusion by keeping small transactions free while generating revenue from higher-value transfers.

The Road Ahead

This transition heralds a new dawn for our industry, one filled with boundless possibilities that we, as pioneers, have the privilege to shape. By maintaining modest convenience fees while championing breakthrough innovations, we will not only preserve UPI's accessibility but transform it into a strong financial ecosystem that empowers every Indian.

The monetization of bill payments isn't merely a change—it's the foundation of a thriving, sustainable future. The choices we make today will define the future of digital payments in India.

Authored by Ramakrishnan Ramamurthy, Chief Business and Delivery Officer at Worldline.