UPI transactions fall short of government target despite strong growth

Despite witnessing a robust 41 per cent year-on-year growth, Unified Payments Interface (UPI) transactions for the financial year ending 31 March 2025, fell short of the government’s ambitious target by 7.5 per cent.

The government had set a goal of achieving 200 billion transactions for the fiscal year; however, UPI recorded 185 billion transactions, according to data from the National Payments Corporation of India (NPCI).

UPI has continued to expand at a rapid pace, registering 131 billion transactions in the financial year ending 31 March 2024. Despite the high base, the platform’s growth trajectory has remained strong. Transaction values also saw a significant jump, reaching Rs 260 lakh crore in FY25, up from Rs 200 lakh crore in the previous fiscal, representing a 30 per cent increase.

March 2025 proved to be a record-setting month for UPI, with transactions hitting 18.3 billion, while the transaction value surged to Rs 24.77 lakh crore, reflecting a 12.7 per cent increase compared to the previous month. Notably, daily transaction values crossed Rs 1 lakh crore for the first time, with 1 March alone witnessing transactions worth Rs 1.01 lakh crore.

For the entire calendar year 2024, UPI recorded over 172 billion transactions, a 45 percent increase from 117 billion transactions in 2023. The total transaction value in 2024 stood at Rs 246 lakh crore, marking a 34 per cent rise from Rs 183 lakh crore in the previous year.

UPI remains the dominant force in India’s digital payments ecosystem, facilitating approximately 85 percent of all digital transactions. In 2024, the NPCI granted third-party application provider (TPAP) approvals to 20 new companies, bringing the total number of firms to 40 since 2016.

Meanwhile, reports suggest that the government is considering reintroducing merchant charges on UPI transactions and RuPay debit cards.

Currently, no Merchant Discount Rate (MDR) is levied on these transactions, as the NPCI facilitates them free of charge. However, discussions are underway to introduce MDR for large merchants while keeping transactions free for smaller businesses.

A proposal submitted by banks to the government suggests applying MDR on merchants with an annual GST turnover exceeding Rs 40 lakh. The plan also includes a tiered pricing structure, wherein larger businesses would pay higher charges while small enterprises would incur minimal fees.

Bankers argue that since large merchants already pay MDR on Visa and Mastercard debit and credit card transactions, they should also contribute towards UPI and RuPay transactions.

Before 2022, MDR on UPI transactions stood at less than 1 percent. However, the government scrapped these charges in the FY22 budget to promote digital payments. Since then, UPI adoption has skyrocketed, making it the most widely used payment method in India.

Despite the proposed MDR introduction, industry experts believe that large retail merchants, who handle over 50 percent of their payments via cards, will not be significantly affected by the move.

However, a survey by Local Circles suggests that 73 percent of UPI users might reduce or stop using the platform if transaction fees are implemented. Additionally, 40 per cent of respondents claimed they had been charged a transaction fee at least once in the past year.

Although UPI transactions remain free for direct bank transfers, a 1.1 percent interchange fee applies to transactions exceeding Rs 2,000 made through Prepaid Payment Instruments (PPIs) such as digital wallets. This fee is borne by merchants rather than consumers.

Social media platforms have seen complaints from UPI users about unexplained transaction fees. According to the Local Circles survey, 15 percent of the 16,445 respondents reported being charged a transaction fee at least 10 times or more in the past year.

As UPI continues its dominance in India’s digital payments space, the introduction of merchant charges and regulatory shifts will be closely monitored by industry stakeholders and consumers alike.