With government incentives for low-value UPI and RuPay debit card transactions shrinking, leading digital payment platforms are turning to new revenue streams, including the introduction of convenience fees on select transactions.
Recently, Google Pay began levying a 0.5–1 per cent convenience fee on bill payments—such as electricity and cooking gas—when made via credit or debit cards. However, direct UPI payments linked to bank accounts remain free. Similarly, PhonePe and Paytm have also introduced convenience fees on various payments, including mobile recharges, utility bills and credit card payments.
The move comes as Payment Service Providers (PSPs) and Third-Party Application Providers (TPAPs) struggle with low margins. Currently, they earn just 0.05 per cent per transaction, shared equally between them, while banks handling these transactions retain a significantly larger share, with interchange fees reaching up to 0.25 per cent of the transaction value.
The government had initially waived the Merchant Discount Rate (MDR) for UPI transactions below Rs 2,000 and RuPay debit card payments to promote digital adoption. However, the subsidies for banks and payment players have been drastically reduced—from Rs 2,484 crore in FY24 to a revised estimate of Rs 2,000 crore for FY25, and further slashed to just Rs 437 crore for FY26.
Despite the decline in government support, convenience fees are just one aspect of the monetisation strategy for UPI apps. Many platforms generate revenue by cross-selling financial products such as insurance, mutual funds and loans, alongside services like travel and flight bookings.
For instance, PhonePe saw its operational revenue surge by 74 per cent in FY24, reaching Rs 5,064 crore, while its losses narrowed to Rs 1,996 crore from Rs 2,795 crore in FY23. The company’s primary revenue driver remains its payments business, underscoring the ongoing transformation of UPI platforms from transaction facilitators to full-fledged fintech players.
As digital payment giants seek sustainable revenue models, users may increasingly encounter transaction-based charges, signaling a shift in India’s digital payments ecosystem.
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