UPI Charge Increase: Causes, Effects and What to Do | 2025

Introduction: India's Digital Payment Revolution and UPI Charges 

UPI (Unified Payments Interface) is one of the main tools of the digital payment revolution in India. Due to the government's encouragement and the efforts of various banks and fintech companies, it has become the main medium for everyday transactions of the common man. However, recently, as the Indian government decided to reduce the UPI subsidy, UPI apps like Google Pay, PhonePe, Paytm have started charging convenience fees.

Reasons for the reduction in government subsidies and their effects

Initially, the Indian government used to provide various subsidies to encourage UPI transactions. In particular, for UPI transactions below Rs. 2000, the government used to reduce the Merchant Discount Rate (MDR) and provide subsidies to various PSPs (Payment Service Providers) and TPAPs (Third Party Application Providers). However, this subsidy has been reduced significantly since FY24 (2024-25 financial year).

Government Budget Allocation:

  • Subsidy in FY24: Rs. 2484 crore
  • Revised Budget for FY25: Rs. 2000 crore
  • For FY26: Rs. 437 crore
Because of this, UPI providers have been forced to find new ways of earning, one of which is ‘convenience fee’ or additional charge.

New rules for increasing charges for UPI apps

Currently, apps like Google Pay, PhonePe, Paytm are charging convenience fees ranging from 0.5% to 1% on certain transactions. Specifically,
  • Electricity bill payment
  • Gas bill payment
  • Mobile recharge
  • Payment using credit and debit cards
However, direct UPI transactions through bank accounts are still free.

Why are these charges being levied?

Convenience fees are no longer the only source of income for UPI apps. They earn income by selling various financial products, such as:
🔹 Insurance policies
🔹 Mutual funds
🔹 Loan disbursement services
🔹 Air and train ticket booking services
However, due to the reduction in government subsidies, these apps have been forced to introduce convenience fees.

ALSO READ: Union Budget 2025: Major Tax Reforms and their Impact on You

Impact of UPI charge hike on the common man

1. Increased cost: These additional charges have become a big burden for those who regularly pay bills online. For example, if you pay an electricity bill of Rs. 1000, you have to pay an additional Rs. 10 as a convenience fee.
2. Increase in direct transactions through banks: Many are now using direct bank apps instead of Google Pay or PhonePe, as there are no additional charges.
3. Impact on merchants: Small merchants, who used to accept payments using QR codes, are now looking for alternative methods due to the new charges.

What could happen in the future if UPI charges increase?

➡ Digital payments will remain popular in India, but this increase in charges could make customers more bank-dependent.
➡ Many will start using bank-based UPI platforms to avoid convenience fees.
➡ If the Indian government formulates new policies in the future, these charges may be reduced or new types of benefits may be added.

How to avoid UPI charges?

✔ Use government banks' own UPI apps (such as BHIM UPI).
✔ Make payments directly from the bank's mobile app.
✔ Make bank transfers by scanning a QR code.
✔ Use platforms that do not have convenience fees.

Conclusion: Will digital transactions in India change?

The increase in UPI transaction charges may be a setback for the common man, but it was inevitable as companies had to find alternative revenue streams to survive. It remains to be seen how these changes affect consumer behavior and how the Indian government and banking institutions adapt to this change. Do you think this charge increase is reasonable? Share your opinion in the comments!

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