Driving Economic Growth
The macroeconomic environment influences payment behaviours. Budgetary measures that increase disposable incomes, such as tax benefits or relief initiatives, could further boost UPI transaction volumes. Increased consumer spending power can accelerate India’s transition to a less-cash economy, benefiting sectors like retail, e-commerce, and MSMEs, which are key contributors to GDP growth. The increasing adoption of UPI reflects this broader economic shift, supporting financial inclusion and fostering digital entrepreneurship.
Rethinking UPI Monetisation for Sustainable Growth
A key consideration for the payments ecosystem is the sustainability of the current Merchant Discount Rate (MDR) framework for UPI transactions. UPI now accounts for a significant share of digital payments, making the zero-MDR model important to reassess. While the zero-MDR regime has driven widespread adoption, it is essential to ensure continuous investment in technology, cybersecurity, and fraud prevention.
A reasonable implementation of MDR for transactions above ₹2,000 could create a sustainable revenue model while preserving financial inclusion by keeping small-ticket transactions free. This approach would also open monetisation opportunities for non-banking players like Third Party Application Providers (TPAPs), promoting more balanced traffic distribution across the ecosystem.
Leveraging AI for Enhanced Security and Innovation
The role of artificial intelligence (AI) in the payments industry continues to grow, particularly in the areas of fraud detection and prevention. With fraud incidents on the rise, AI-based solutions have become essential for securing digital transactions. The anticipated launch of the IndiaAI Datasets Platform in 2025 is a positive development, but targeted funding for AI models specific to PayTech will be critical. These investments will help develop advanced security solutions and encourage innovation within the sector.
Additionally, the establishment of shared data models and centralised financial crime repositories could strengthen counter-fraud efforts, particularly for smaller players with limited resources. Lastly, AI Mission Fund should prioritise skill development in AI, machine learning, and data analytics to support the growing demands of the PayTech industry.
Conclusion
India’s digital payments sector has become a significant player in the global landscape. As we look to the Union Budget 2025-26, there is an opportunity to strengthen this foundation and continue advancing financial inclusion and economic growth. With the right policies and investments, India can further solidify its leadership in digital payments.
—The author, Deepak Chand Thakur, is Chairman and CEO at NPST, one of India’s leading fintech firms. The views are personal.
(Edited by : Unnikrishnan)
