• Big twist for UPI in Budget 2026?


• 85% transactions on UPI, but infrastructure costs huge


• 20 billion transactions, turnover of 27 lakh crores

UPI Crisis in India: UPI, which has become the face of India’s digital revolution, is facing a major crisis today, leading to important decisions in Budget 2026. Currently, banks and fintech companies are incurring technical costs of approximately Rs 2 per UPI transaction. It was popularized by the government’s zero MDR policy, but now, a significant reduction in subsidy has cast doubt on the future of this free model. The payments industry and the RBI are now demanding a balanced model that can make the system financially self-sustaining.

Thanks to Prime Minister Narendra Modi’s Digital India campaign, India has become the world’s largest digital payments market, with 85% of transactions through UPI. Last October alone, more than 20 billion transactions were processed, amounting to a whopping Rs 27 lakh crore, a world record. However, it is a matter of concern that nearly one-third of the country’s zip code areas still have less than 100 active traders, indicating their incomplete reach.

The government had reduced the MDR levy levied on traders to encourage small businesses. In reality, it costs banks money to process each transaction, and government support to cover these costs is steadily decreasing. The Rs 3,900 crore support for digital payments in 2023-24 has been reduced to just Rs 427 crore in 2025-26.

The RBI governor has pointedly warned that the cost of running the UPI infrastructure could touch Rs 8,000-10,000 crore in the next two years. Without revenue they cannot strengthen system security and expand to rural areas. PhonePay and Payments providing long-term free services without a financial model is unsustainable.

In Budget 2026, the government may consider reintroducing limited MDR so that the UPI ecosystem does not have to depend on subsidies. As per the proposal, UPI will remain completely free for P2P transactions and small merchants, but large businesses may be charged a nominal fee. It plans to charge 0.25 to 0.30 percent per transaction for merchants with an annual turnover of more than Rs 10 crore.

The proposed change aims to enable companies to keep their digital infrastructure running 24/7 without burdening customers. If the government does not increase the subsidy in the budget, the only option left is to impose a nominal fee on large commercial transactions to maintain security and innovation. Budget 2026 will determine whether India’s preferred payment mode will continue to rely solely on government support or transition to a self-sustaining commercial model.