UPI and digital payments in India: success story or hidden risks?

UPI, the Unified Payments Interface, is a payment system run by NPCI. It moves money between bank accounts in seconds through a phone app, a QR code or a mobile number. This topic asks whether UPI is a clear success for India, or whether its rapid growth is hiding risks like fraud, outages and the question of who pays for it.

It is in the news because the free run is about to change. The Finance Ministry and NPCI announced on 15 September 2026 that from 15 October 2026 merchants will pay a 0.4% fee on UPI payments above ₹2,000. The Supreme Court declined to stop it in late September 2026, but asked the Centre to explain the legal basis of the charge.

Background

The Press Information Bureau (PIB) said in August 2026 that UPI handled 24,162 crore transactions worth ₹314 lakh crore in 2025-26. In 2016-17 it handled under 2 crore. PIB says UPI is 84% of India's digital payments and nearly 49% of the world's real-time payment volume, and that the IMF recognises it as the largest real-time payment system by volume. The Finance Ministry says August 2026 alone saw 2,451 crore transactions worth ₹29.9 lakh crore.

The RBI Digital Payments Index tracks how far payments have gone digital, with March 2018 set at 100. It stood at 516.76 for September 2025, up from 493.22 in March 2025. Abroad, PIB counts 11 countries where UPI works. They include the UAE, Singapore and France.

UPI has been free for merchants since January 2020, when the government made the merchant discount rate (MDR) zero for UPI and RuPay debit cards. MDR is the fee a shop pays its bank to accept a payment. Banks and apps still have costs, so the government pays them an incentive. It was ₹1,500 crore for 2024-25.

The Budget for 2026-27 gives ₹2,000 crore, which Business Standard says is 8.9% below ₹2,196 crore in 2025-26. The Finance Ministry's FAQs of 15 September 2026 say industry estimates the running cost at about ₹20,000 crore a year, and call the subsidy a short-term bridge.

The risks are also measured. The Home Ministry told the Lok Sabha on 21 July 2026 about the years 2021 to 2025. The National Cyber Crime Reporting Portal logged more than 65.89 lakh financial fraud complaints, with more than ₹55,050 crore reported lost. That covers all cyber financial fraud, not UPI alone.

On 12 April 2025 UPI success rates fell to about 50% for two hours, and NPCI blamed some banks for flooding the system with status requests. NPCI data reported in the press shows PhonePe and Google Pay together had 79% of volume in May 2026.

Under the new rules the fee has a threshold, a cap and several exceptions. Pick an amount and a merchant type below to see what the merchant pays, and how that compares with cards.

Points in favour

These points support the view that UPI is a success story.

• It reached scale quickly. PIB reports that volume rose from under 2 crore transactions in 2016-17 to 24,162 crore in 2025-26, and that 741 banks were live by July 2026. The IMF recognises it as the largest real-time payment system by volume.
• It is free for users and for small shops. Payments up to ₹2,000 stay free, and the Finance Ministry says they are over 95% of merchant volume. Small merchants collecting up to ₹1 lakh a month on a QR code also stay free, so a tea stall pays nothing.
• Even the new fee is lower than cards. The Finance Ministry says credit card MDR is typically 1.5% to 2.5% and debit card MDR is up to 0.90%. UPI's 0.4% is capped at ₹300, so a ₹1 lakh payment costs the merchant ₹300 and not ₹400.
• It now works abroad. UPI is live in 11 countries as of August 2026, from Singapore to France. That gives Indian travellers a familiar way to pay, and shows other countries a public system that can scale.
• Digital payments keep deepening. The RBI Digital Payments Index rose from 493.22 to 516.76 between March and September 2025. For the March 2025 rise, the RBI named wider QR code acceptance and growth in UPI transactions.

Points against

These points support the view that UPI carries hidden risks.

• Fraud losses are large. From 2021 to 2025 the Home Ministry counts more than ₹55,050 crore reported lost to cyber financial fraud. It says about ₹11,158 crore was saved by June 2026. A person who is tricked into approving a payment often cannot get the money back.
• One outage affects everyone. On 12 April 2025 success rates dropped to about 50% for two hours. Because shops, bills and rent all run on UPI, a failure of a few hours stops daily life.
• Two apps hold most of the market. NPCI's 30% cap on any single app has been pushed to 31 December 2026. If one of the two big apps fails or changes its terms, millions of people feel it.
• The legal basis of the new fee is disputed. A petition filed on 16 September 2026 says the charge lacks clear safeguards and consultation. The Supreme Court did not stay it, but it asked the Centre to explain what kind of charge it is.
• The funding gap is real. The Payments Council of India had expected more than ₹10,000 crore for incentives. The Budget gave ₹2,000 crore. Against an industry running cost of about ₹20,000 crore, less funding can mean less spending on security and reliability.

Opening the discussion

You can open with a fact. "UPI handled 24,162 crore transactions in 2025-26. It is 84% of India's digital payments, so this is a discussion about how India pays." This works when you want to start with authority and a number.

You can open with the news. "From 15 October merchants pay 0.4% on UPI payments above ₹2,000, so the free era is ending. Is that a sign of success or a warning?" This works when the group is following current affairs and you want to set the frame.

You can open with a question. "If UPI is so successful, who is paying for it, and who pays when it goes wrong?" This works when you want both sides to speak early.

Concluding the discussion

A good conclusion names the strongest point on each side, then gives a position that follows from them. Say that UPI's scale and low cost are real, and that fraud, outages and concentration are also real.

"We heard that UPI is 84% of digital payments and costs far less than cards, and we also heard that fraud losses and outages show the system needs stronger safeguards. So UPI is a success that now has to prove it can stay cheap enough to reach everyone and well funded enough to stay safe."

Facts worth quoting

Mistakes to avoid

• Do not say UPI is charging users. The fee is on merchants and only above ₹2,000. The Finance Ministry says person-to-person payments stay free.
• Do not use the fraud total as a UPI-only number. The ₹55,050 crore covers all cyber financial fraud, so say that when you quote it.
• Do not call UPI "free" without a qualifier. It has costs that the government and banks have been bearing, and that is exactly what the fee debate is about.
• Do not treat 2025 figures as current. Say "as of October 2026" for the MDR, because the Supreme Court case is still open.