With government incentives for low-value UPI and RuPay debit card transactions shrinking, digital payment apps are exploring new revenue streams, including imposing convenience fees on select transactions.
Recently, Google Pay introduced a 0.5–1% convenience fee on bill payments—such as electricity and cooking gas—made using credit and debit cards. While these services were previously free, direct UPI transactions linked to bank accounts remain exempt from such charges. Similarly, PhonePe and Paytm have also implemented convenience fees on various payments, including mobile recharges, utility bills, and credit card settlements.
Payment service providers (PSPs) and third-party application providers (TPAPs) currently receive only 0.05% (5 basis points) per transaction, split equally between them. Meanwhile, banks handling the transactions retain a significantly larger share, with interchange fees reaching up to 0.25% of the transaction value.
The government initially waived the merchant discount rate (MDR) for UPI transactions below ₹2,000 and RuPay debit card payments to encourage adoption, compensating banks and payment players through subsidies. However, these incentives have declined sharply since FY24, with budget allocations dropping from ₹2,484 crore in FY24 to a revised estimate of ₹2,000 crore for FY25—and a drastic cut to just ₹437 crore for FY26.
Despite this shift, convenience fees are just one part of the monetization strategy for UPI apps. Many platforms generate substantial revenue from cross-selling financial products like insurance, mutual funds, and loans, as well as offering services like travel and flight bookings.
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For instance, PhonePe’s operational revenue soared 74% in FY24, reaching ₹5,064 crore, while its losses narrowed to ₹1,996 crore from ₹2,795 crore in FY23. The company’s primary revenue source remains its payments business, highlighting the ongoing evolution of UPI platforms from mere transaction facilitators to diversified fintech players.
