Slow UPI growth: Industry frets as monetisation remains elusive

A moderation in UPI growth is worrying industry players, who warn that low incentives and lack of monetisation could slow expansion of India's digital payments ecosystem

A slowdown in the rate of growth in India’s flagship Unified Payments Interface (UPI) is raising concerns, with stakeholders flagging absence of monetisation and government incentives that remain below the industry’s operating costs.  Volumes on India’s real-time payments system have risen 6.84 per cent so far in financial year 2026 (FY26) to 197.87 billion cumulative transactions as of January 2026. FY25 recorded 185.86 billion transactions in total.   

Volume is estimated to close at 240.5 billion transactions in FY26, according to a PwC report. This would imply a 29 per cent year-on-year rise, significantly lower than growth rates seen in recent years. 

UPI accounts for over eight in 10 digital payment transactions by volume, making any slowdown a potential drag on the broader digital payments ecosystem. 

Growth vis-a-vis incentives 

The centre’s incentive scheme for promotion of low-value BHIM-UPI peer-to-merchant (P2M) and RuPay debit card transactions allocated ₹2,196.21 crore for FY26, a 14.22 per cent increase, compared with ₹1,922.77 crore in FY25. 

In FY27, ₹2,000 crore have been earmarked under the Union Budget, which, if unchanged, would mark a 9 per cent decline from FY26. 

For illustration, when the government provided ₹3,631 crore in incentives in FY24, of which 90 per cent went towards UPI, the real-time payments system’s volume grew 56.6 per cent. 

This was the highest allocation since the centre notified the scheme in FY22. 

To be sure, fears of a slowdown in growth come at a time when the base effects are kicking in. 

With more than 450 million unique users on UPI, the payments system recorded 21.7 billion transactions in January 2026 alone. In comparison, five years back, UPI recorded just 2.3 billion transactions in January 2021. 

Despite the base effect, people in the know believe that UPI has the potential to grow 10 times from its current levels, subject to monetisation and investment in the infrastructure. 

The government incentivises the industry, since UPI continues to remain free from any merchant discount rate (MDR), with banks and fintech players bearing processing costs.  The industry believes that it requires between ₹10,000 crore to ₹15,000 crore to sustain and grow UPI, or risk growth stagnation. 

Industry’s ask 

“The major concern that we can see now is that growth has slowed down considerably, with everyone having little to invest in the system. Payments fintechs are not attracting funding. A solution to this is to let the industry charge large merchants for using UPI, through a rate that’s much lower than processing even a credit card transaction,” a person in the industry said. 

They claimed that the existing set of incentives barely recovered infrastructure costs. 

Vishwas Patel, managing director of AvenuesAI Ltd and chairman of the Payments Council of India, argued that instead of relying on subsidies, a low regulated MDR of 30 basis points (bps) should be permitted on UPI P2M transactions for merchants with annual turnover above ₹20 lakh, with the ask being that the payments instrument be free for other smaller merchants and peer-to-peer transactions. 

The industry’s fear of stagnation comes as India has another set of 300 million citizens to be onboarded for digital payments, which in the absence of adequate monetisation will be challenging. 

“With these kinds of incentives for the fintech industry, it will be very difficult to get the next set of 300 million Indians on the Digital payments bandwagon, as well as deploy acceptance mechanisms in the hinterland of our country. With increasing deployment and servicing costs as well as increasing RBI compliance costs, it will choke the growth. We don’t want to survive on government incentives,” Patel explained. 

Funding in India’s fintech sector contracted for a third consecutive year, with the sector raising $1.9 billion in 2024, according to data from market intelligence platform Tracxn. 

This marks a 32 per cent decline from the $2.8 billion raised in 2023. The number of funding rounds also hit an eight-year low, with 228 rounds in 2024 compared to 324 in 2023. The sector peaked in 2021, raising $8.3 billion across 665 rounds.