India’s Unified Payments Interface (UPI) hit a new high in October, with average daily transaction value surpassing one trillion rupees for the first time. Transaction volume also reached a record, suggesting the digital payments platform remains a major force in India’s economy. But beneath the milestone, there are signs that its growth may be losing momentum, raising questions about what comes next.
October’s record-breaking performance was driven in part by the Diwali shopping season. Alongside the everyday purchases that have made UPI ubiquitous, consumers used the platform for larger holiday transactions, pushing up the average daily value of payments.
Growth Comes With Financial Questions
The record comes as UPI faces questions about its financial sustainability. Earlier this year, the National Payments Corporation of India (NPCI), which operates UPI, proposed introducing charges on larger transactions. The merchant discount rate (MDR), initially scheduled to take effect October 5, was deferred amid concerns that introducing the fees during the busy Diwali season would create complications for merchants.
But the mere fact that the system needs that financial support has raised questions about UPI’s ability to sustain its growth without additional revenue.
“The volume and value point to strong growth of the payment system,” said Ben Danner, Senior Analyst of Debit at Javelin Strategy & Research. “However, what is concerning is the discussion of the MDR—a revenue driver, which signals potential trouble among the platform’s costs. As UPI scales, leaders at the NPCI may turn towards applying the MDR to boost revenue to pay for the added costs of doing business.”
The monthly transaction figures offer another perspective. From April through August, UPI transaction volume continued to climb, but the average amount spent per transaction declined, leaving overall daily transaction value largely unchanged. That pattern shifted in September and October, when transaction values began growing faster than volume, indicating an increase in average payment size.
Effects on Volume
The proposed MDR would impose a 0.4% fee on merchants for transactions exceeding 2,000 rupees, or about $21. Because the charges target larger payments, there are concerns that they could slow the recent increase in average transaction size.
However, their effect on overall UPI transaction volume may be more limited.
“The proposed MDR is only for a small percentage of transactions occurring over the UPI,” said Danner. “The vast majority are under the proposed amount. But it could have potential steering effects to other payment types if merchants raise the price of goods to compensate for the added MDR cost.”
