MobiKwik co-founder Upasana Taku recently addressed the necessity of the new Merchant Discount Rate (MDR) on UPI transactions exceeding ₹2,000, stating that government subsidies alone were insufficient to cover the operational costs borne by payment companies. Speaking to Business Today TV, Taku emphasized that the industry has sought a sustainable revenue model for India's rapidly expanding digital payments ecosystem for several years.
The Hidden Costs of 'Free' UPI
While UPI transactions appear free to consumers, Taku highlighted that maintaining the underlying payment infrastructure incurs significant expenses for both banks and payment service providers. These costs include substantial investments in server infrastructure, robust fraud prevention systems, advanced cybersecurity measures, continuous innovation, and dedicated engineering teams.
Taku revealed that the cost of processing a single transaction, solely for server expenses, is approximately 20 paise. "Almost all payment companies have reported that the cost of processing a transaction just in terms of server cost itself is 20 paise," she stated. "And the revenues that we’ve been earning on all of this has been zero, and it is a huge drag on all of our portfolios."
Subsidies Insufficient for Growth
According to Taku, the government subsidies provided for UPI over the past two years covered only a small fraction—between 10 to 15 percent—of the total costs incurred by payment players. This significant gap necessitated a more sustainable revenue stream.
For several years, major stakeholders, including payment companies, banks with substantial payment operations, the Payments Council of India, and the Indian Fintech Forum, have actively advocated for some form of monetization for UPI. These industry representatives have engaged with the Finance Ministry and the Reserve Bank of India, stressing the critical need for a stable revenue source to facilitate ongoing investment and growth within the UPI ecosystem.
Investing in Future Digital Payments
Taku's argument extends beyond merely covering current processing costs. She underscored the continuous need for investment in fraud prevention, cybersecurity enhancements, infrastructure upgrades, and innovation as India's digital payments landscape continues its rapid expansion. "If we need for the next 10 years the cost of UPI infrastructure, the cost of fraud prevention, innovation, cybersecurity... I’m not even counting the cost of engineering teams that we all have to deploy. We have to get that from somewhere," she explained.
It's important to note that Taku clarified that the introduction of MDR does not signify that the entire UPI ecosystem will become chargeable. Many aspects of UPI payments will continue to remain free even after the new charges take effect. While the new MDR "is also still not making everyone whole," she concluded, "it is definitely going to reduce the losses that all the payment companies and the banking, payment P&Ls have been posting."