UPI growth slows amid debate over payment fees
What's the story
The growth rate of Unified Payments Interface (UPI) transactions has slowed down by 10 percentage points in the first four months of FY27, compared to the same period last year. The data from the National Payments Corporation of India (NPCI), which runs UPI, shows that there were 92 billion transactions between April and July this year. That's a 23.5% increase from last year's corresponding period but significantly lower than the 33.5% growth recorded in FY26's first four months.
Growth slowdown
UPI's growth rate cut by half over 2 years
The deceleration in UPI's growth isn't just a quarterly trend. The platform saw a nearly 30% increase in FY26, down from an impressive 41% in FY25.
This means that over the last two years, UPI's growth rate has been cut by half or nearly 20 percentage points.
However, it's important to note that these figures aren't directly comparable as they represent different time frames.
MDR impact
Sluggish growth amid MDR fee debate
The slowdown in UPI's growth comes amid a heated debate over the Merchant Discount Rate (MDR) on large-value merchant transactions.
The MDR is a fee businesses pay banks for processing digital payments.
Since 2020, the government has mandated zero MDR on UPI to promote digital transactions. However, some fintechs and payment companies argue that this lack of a revenue model has led to reduced investment in expansion by banks and payment firms, thereby slowing down platform growth.
Potential benefits
Industry divided on necessity of MDR levy
Some industry experts believe that an MDR levy could have accelerated UPI's growth.
They argue it would have allowed fintechs to offer cashbacks to new customers and expand their sales teams to onboard more merchants onto the platform.
However, others argue that zero fees are necessary for faster adoption among newer segments of the population, just like Aadhaar has done with digital identity.
Value increase
Transaction value on the rise
Interestingly, despite the slowdown in the transaction volume growth, the transaction value growth rate has improved slightly from 18.5% for the full year FY26 to 20% during the first four months of FY27.
This indicates that while fewer transactions are being made, they are likely of higher value than before.