On the UPI payment itself, almost nobody makes money. That is not a bug. It is the design. The UPI business model splits into two worlds. The transfer is free and runs at a loss for the banks that carry it. The money sits one layer above, in the loans, ads, bill payments and insurance sold on top. In 2025 UPI moved 228.3 billion transactions worth USD 3.4 trillion, roughly half of all real-time payments on the planet. The merchant fee on a standard UPI payment is still zero. So who actually makes money? Read on.
Who runs the UPI rails (December 2025)
Share of UPI transaction volume
- 45.35% PhonePe
- 34.64% Google Pay
- 7.65% Paytm
- 12.36% Everyone else
Two apps move about 80% of all UPI volume, and earn nothing on the payments themselves. Source: NPCI data via Angel One, December 2025.
Does anyone earn a fee on a normal UPI payment?
No. A normal UPI transfer carries a Merchant Discount Rate, or MDR, of zero. MDR is the small cut a shop normally pays its bank when you swipe a card. On UPI, the government scrapped it in January 2020.
That single decision is why UPI exploded. It is also why the rails lose money.
Think about what a payment actually costs. Servers, fraud checks, customer support, bank settlement, NPCI processing. Someone pays for all of it. On a card swipe, the merchant pays through MDR. On UPI, the merchant pays nothing. The cost does not disappear. It just moves onto the banks and the apps.
A fee of just 0.1% on UPI’s 2025 value would have thrown off around USD 3.1 billion a year. The system collects almost none of it. That is the whole story.
So who pays for the “free” in free UPI?
You do not. The banks do, and the taxpayer tops them up.
The government runs an incentive scheme to soften the blow. It paid the industry about Rs 1,500 crore for FY2024 to 25. For FY2026 to 27 it has budgeted Rs 2,000 crore. The money goes to the acquiring bank, then gets shared with the issuing bank, the payment service provider and the app.
Here is the catch. That subsidy is a rounding error against the real cost. The Department of Financial Services said the incentive covers only about 11% of the cost the industry carries, and only 14% of the MDR it could have collected. To put a number on the gap, a fee of just 0.1% on UPI’s 2025 value would have thrown off around USD 3.1 billion a year. The system collects almost none of it.
So the rails run at a structural loss, propped up by a subsidy that everyone admits is too small. This is the same “growth now, money later” trap we wrote about in quick commerce. Win the market first. Find the profit afterwards. Maybe.
Does NPCI get rich running the rails?
Not really. NPCI is the not-for-profit body that owns and runs UPI. For all the scale it carries, its operator surplus was about Rs 1,552 crore in FY2025. That is a thin margin on a network pushing roughly USD 3 trillion. NPCI keeps the lights on. It is not the one cleaning up.
Then how do PhonePe and Google Pay make crores?
By owning the rails and selling everything next to them. Two apps run the show. In December 2025, PhonePe processed 9.81 billion transactions and held 45.35% of UPI volume. Google Pay held 34.64%. Paytm trailed at 7.65%. Two apps move about 80% of every UPI payment in India.
They earn nothing on those payments. They earn on what comes after. The list is long. Mobile recharges and bill payments pay them a commission. Brands pay to sit inside those scratch-card rewards, which are really ads. Small shops pay for soundboxes and merchant tools. Then the big one: financial services. Mutual funds, insurance, digital gold and loans, each one paying the app a cut.
The payment is the hook. The cross-sell is the catch. It is the same playbook CRED ran, dressed up as a rewards game.
What is the real UPI business? Lending.
This is the part of the UPI business model people miss. The UPI app is not a payments business pretending to make money. It is a lending business using free payments as the front door.
Look at PhonePe before its IPO. Its revenue rose 56% to about Rs 7,115 crore in FY2025. Its adjusted profit of roughly Rs 630 crore came almost entirely from financial services, not from payments. Its financial-services revenue grew 206% in a single year. Lending and insurance went from under 1% of revenue in FY2023 to about 11.55% by September 2025.
Merchant lending tells the same story. PhonePe’s merchant-lending income jumped from Rs 71.65 crore in FY2024 to Rs 328.04 crore in FY2025. The free QR code on the kirana counter was never the product. It was the data trail and the credit pitch.
The Real Business
PhonePe’s FY2025 profit came almost entirely from financial services, not payments. Its financial-services revenue grew 206% in a single year. The UPI transfer is the hook. The loan is the business.
Will UPI payments ever charge a fee?
For credit, they already do. When you pay with a RuPay credit card linked to UPI, it stops being a free transfer and becomes a credit transaction. That carries an MDR of about 2% on payments above Rs 2,000. Of that, roughly 1.5% goes to the card-issuing bank, and the rest is split with RuPay and the acquirer. Credit, not debit, is where the fee lives.
The bigger fight is over normal payments. In March 2026, a parliamentary committee pushed to bring MDR back on large merchants, the big chains that can clearly afford it, while keeping small shops free. The logic is simple. The subsidy is not enough, the gap keeps widening, and someone has to pay. Small merchants and everyday users would stay protected. Big retailers would start paying to accept the rails they have been using for free.
Nothing is settled. But the direction is clear. Free UPI for you is not the end state. It is the customer-acquisition phase of a much larger credit business. That is the real UPI business model, and it has very little to do with the payment.
FAQ
Is UPI free for customers?
Yes. For a normal bank-to-bank UPI payment you pay nothing, and there is no plan to charge ordinary users. The only fee case today is paying with a RuPay credit card on UPI, where the merchant, not you, pays about 2% MDR on amounts above Rs 2,000.
Who pays the cost of UPI then?
The banks carry the operating cost. The government tops them up with an incentive scheme, about Rs 1,500 crore for FY2024 to 25 and Rs 2,000 crore budgeted for FY2026 to 27. Even officials admit that covers only a small slice of the real cost.
How does PhonePe make money if UPI is free?
Not from your transfers. PhonePe earns from bill payments, recharges, ads, merchant tools, insurance, gold and especially lending. In FY2025 its profit came almost entirely from financial services, and its financial-services revenue grew 206% year on year.
Does NPCI profit from UPI?
Barely. NPCI is a not-for-profit operator. Its surplus was about Rs 1,552 crore in FY2025 on a network moving roughly USD 3 trillion. It runs the system close to break-even.
Will UPI start charging MDR?
Possibly, for large merchants. A March 2026 parliamentary committee recommended bringing MDR back for big merchants while keeping small shops and users free. It is a recommendation, not law, but the funding gap makes the pressure real.
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The Brand Crush is independent brand journalism. No brand pays for coverage here. This piece is analysis and fair comment based on publicly reported figures, each sourced below. Company names are used for identification and commentary only.
Sources: UPI 2025 volume, value, NPCI surplus, PhonePe profit and the 0.1% MDR estimate: Digital in Asia. Government incentive scheme (Rs 1,500 Cr FY25, Rs 2,000 Cr FY26-27) and zero-MDR structure: Press Information Bureau. App market share, December 2025: Angel One. PhonePe lending and financial-services revenue: Indian Startup News. RuPay credit card on UPI 2% MDR: Business Standard. Parliamentary committee MDR recommendation (March 2026): MediaNama.
