UPI Made Paying Simple. Making It Sustainable Is Next
Zero fee built trust and scale yet ratings agency CareEdge says the next phase depends on smarter ways to earn that keep access intact.
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India’s real-time payments network has scaled to 491 million users and 65 million merchants, yet its next leg of growth will depend on new revenue lines because a zero merchant discount rate makes the system hard to sustain, credit ratings firm CareEdge said in a new report.
UPI handled 54.9 billion transactions in the June quarter of FY26, with the average ticket falling to ₹1,330 from ₹1,662 in FY23 as consumers pushed it deeper into everyday spends.
Digital payments accounted for 92.6% of retail payment value and 99.8% of transaction volume in the quarter, indicating how UPI has become the dominant front end even as other rails like NEFT and NACH remain important for larger or bulk transfers, the agency said.
“UPI transactions have registered phenomenal 49% CAGR (compound annual growth) between FY23 and FY25, underscoring rapid adoption with rising internet penetration as well as deepening penetration in tier-II and -III cities. However, its zero-MDR framework challenges long-term sustainability,” said Tanvi Shah, Senior Director at CareEdge Research.
The report, titled “India’s Retail Payments Revolution: Digital Dominance and Cash Resilience”, said micro-credit, merchant analytics, insurance and partnerships with fintechs can provide monetization without eroding access.
CareEdge frames the shift as structural rather than cyclical. By its estimate, digital transactions’ share of Private Final Consumption Expenditure rose from 30% in FY23 to 50% in Q1 FY26, a tipping point that still leaves headroom because cash retains a 50% share and remains a backstop in the informal economy.
“Cash and digital transactions will co-exist to drive financial inclusion and power a truly inclusive economy,” said Kalpesh Mantri, Assistant Director at CareEdge Research.
The sustainability debate has sharpened this year. The Payments Council of India in March sought permission to levy MDR on RuPay debit card payments for all merchants and a 0.3% MDR on UPI for large merchants, arguing that some economics are needed to underwrite investments by banks and payment firms.
Policymakers have discussed a limited reintroduction for bigger tickets, but the finance ministry reiterated in June there is no plan to impose MDR on UPI, keeping the status quo for now.
Growth is maturing from rapid onboarding to frequency-led usage. The fall in average ticket size, alongside a 36.8% CAGR in transaction value between FY23 and FY25, suggests a broader mix of micro-payments layered on top of bill pay, peer transfers and merchant QR spends.
