Former NITI Aayog vice-chairman Rajiv Kumar has cautioned that India's rapid gains in digital payments could be at risk if merchant UPI transactions are charged too soon. In a sharp intervention, Kumar argued that the government should keep merchant payments on the Unified Payments Interface free for a few more years, saying even a small fee may be enough to nudge users back toward cash.
His warning comes at a sensitive moment for India's payments ecosystem. The government has announced a 0.4% merchant discount rate, or MDR, on UPI merchant payments above Rs 2,000 from October 15, while continuing to exempt consumer payments. The move is intended to create a more sustainable payments framework, but it has also revived a long-running policy debate over how to balance financial inclusion, merchant economics and the scale of India's digital public infrastructure.
Fee Risk Debate
Kumar's central concern is behavioural rather than technical. UPI has become deeply embedded in everyday commerce because it is fast, low-friction and, crucially, free for users. That combination helped drive a dramatic shift away from cash, especially in urban retail, small-ticket purchases and peer-to-merchant transactions. He warned that introducing charges on merchant payments could alter that equation, particularly for price-sensitive users and small businesses that operate on thin margins.
The former policymaker's comments reflect a broader fear among digital payments advocates: once a payment rail becomes associated with cost, adoption can slow, and some users may revert to cash for convenience or to avoid fees. In a country where cash still plays a major role in informal commerce, even a modest charge can have outsized effects if it changes merchant behaviour or leads businesses to discourage digital acceptance.
Policy Balancing Act
The government's decision to keep consumer UPI payments free while imposing MDR on certain merchant transactions suggests an attempt to preserve mass adoption without leaving the system entirely without revenue support. Yet the policy challenge is delicate. Payment networks require investment in infrastructure, compliance and fraud prevention, and the question of who bears those costs has long been contentious.
For policymakers, the issue is not simply whether UPI should remain free, but how to fund its expansion without undermining the very usage that made it successful. Kumar's intervention underscores the risk that a fee, however limited, could create a psychological barrier in a market where digital payments have only recently achieved scale. His argument is that the state should treat UPI as a public utility for longer, allowing the ecosystem to deepen before introducing charges that could distort user behaviour.
The timing is especially significant for the broader mobility and automotive ecosystem, where digital payments increasingly support fuel purchases, tolls, parking, charging infrastructure and app-based transport services. Any slowdown in UPI usage could ripple across these adjacent sectors, particularly where cashless transactions have improved speed and traceability. For electric vehicle adoption in particular, seamless digital payments are part of the broader convenience proposition, from charging stations to subscription-based mobility services.
Cashless Gains At Stake
India's digital payments story has been one of the country's most visible policy successes, with UPI emerging as the dominant retail payments rail. Its rise has been powered by interoperability, low transaction friction and broad merchant acceptance. That success, however, has also created expectations that the system should remain effectively free at the point of use.
Kumar's warning is a reminder that payment policy is not only an economic issue but also a behavioural one. If merchants pass on costs to consumers, or if small businesses begin to prefer cash to avoid fees, the gains from years of digital adoption could be diluted. That would be particularly damaging in segments where formalisation and traceability are still evolving.
The government now faces a familiar trade-off: preserve the momentum of a national digital utility, or introduce a fee structure that may improve sustainability but risks slowing adoption. Kumar's message is clear — if the objective is to keep India moving away from cash, UPI merchant payments should remain free for longer than the current policy horizon.