New Delhi: The Unified Payments Interface (UPI) has revolutionized the payment landscape in India by enabling millions of users to make payments more conveniently. UPI has simplified the process of transferring and receiving money, whether it’s a small tea shop or a big store. The system also expanded quickly, surpassing over 23 billion transactions during the month of May in 2026.
But the success of UPI has also ushered in some new challenges. What’s the biggest problem is the system has turned into a real dependency on a handful of big payment apps. Late this year, UPI transaction volumes have been driven mainly by PhonePe and Google Pay, accounting for about 80% of all transactions, which is a cause of concern on competition and market balance.
Why Does UPI Need Reform?
There is one big issue, that of revenues. So far, UPI payments are not accompanied by any charge to the merchant or the users. It did help India take a step towards digital payments, but banks and fintech firms do need money to keep their servers running, enhance security and build new services.
As now doing billions of transactions per month, it is becoming increasingly difficult to ignore the cost of operating the system with UPI. A recent offering calls for a very small fee on large scale commercial transactions, while every day, one-to-another payments would be free.
Another issue is concentration of markets. With a small number of apps taking the majority of transactions, it becomes challenging for smaller businesses to keep competitive pace. India has already announced to impose a cap of 30% market share on each individual UPI Apps which was yet to be implemented.
Where Should UPI Be Reformed?
There are three key areas to focus on: fair competition, sustainable revenue and improved infrastructure.
Normal transactions or purchases with other persons and small amounts should be free of any charges. Meanwhile big companies and high-dollar transactions would be subject to a small charge. This may allow banks and payment companies to be able to fund the system without further burden to the average end-user.
India too should be pushing more UPI Apps to compete and ensure less reliance on big platforms in UPI. UPI is one of India’s greatest success stories in the digital era. The task of reforming it does not equal weakening it. It involves ensuring that UPI is not only affordable, competitive but also robust to be suitable for India’s digital economy for many years to come.
