How do UPI apps make money?

We require UPI Applications and online wallets for quick and simple transactions. Only UPI apps or online wallets can make it convenient to conduct transactions without cash or a card when we are at home or elsewhere.

On mobile devices, these Apps make it possible to make contactless purchases in-app, online, and offline. One may send money to other users, service providers, and company owners using a UPI app. They can also pay their bills to even third parties using any Payment Instruments that the vendor accepts.

Online UPI transactions are now considered to be speedy and contactless. Words like “gpaying” and “paytming” have swiftly supplanted verbs like “paying” and “making reimbursements” thanks to the popularity of fintech programmes like PhonePe, Google Pay, and Paytm.

Even little businesses like neighborhood Kirana shops and vegetable carts have adopted this payment practice in addition to the major enterprises.

How big is the UPI App industry?

It’s a multibillion-dollar issue that hundreds of local entrepreneurs and worldwide behemoths are attempting to answer as many of them rapidly shift their attention to servicing merchants and developing loan products and other financial services.

In late 2016, New Delhi’s unexpected decision to invalidate much of the country’s paper currency pushed hundreds of millions of people to cash machines for months.

This cash shortage meant tens of millions of new customers in a few of months for a few businesses like Paytm and MobiKwik.

India subsequently moved on to collaborate with a bank coalition to create a payments infrastructure that, unlike Paytm and MobiKwik’s previous systems, did not function as an intermediate “mobile wallet” to permit direct transactions between two customers’ bank accounts rather than operate as a middleman between consumers and their banks.

Silicon Valley businesses noticed right away. In numerous Asian and African regions, where they have hundreds of millions of users, Google and similar companies have tried for years to alter consumers’ purchasing habits.

For example, in Pakistan, the majority of people still do errands to nearby shops to top off their credit so they may make phone calls and use the internet.

India was a no-brainer choice because China has kept its doors mostly closed to Western businesses and several US companies have already invested billions of dollars there to attract their next billion consumers.

“Unlike China, we have provided equal possibilities to both small and major local and global enterprises,” Dilip Asbe, CEO of NPCI, the payments authority behind UPI, stated.

And thus the scramble to take part in the giant Indian experiment started. Investors have also followed suit. According to research company CBInsights, Indian fintech firms raised $2.74 billion last year, compared to $3.66 billion raised by their Chinese counterparts.


And that gamble in a market with over 500 million internet users has already begun to pay off.

“If you look at UPI as a platform, we have never seen growth of this magnitude before,” said Nikhil Kumar, who volunteered at a nonprofit group to assist establish the payments infrastructure.

Three years after its launch, UPI had only accrued 100 million users and had already handled more than a billion transactions by the month of October. Since then, it has continued to develop, recording 1.25 billion transactions in March, despite one of the biggest banks in the country experiencing a breakdown last month.

“It all boils back to the issue it is trying to resolve. In the western markets, the majority of digital payments have been concentrated on a person paying money to a business. In addition to doing that, UPI also makes peer-to-peer payments possible across a variety of apps. It is interoperable, according to Kumar, who is currently working with a startup called Setu to create APIs that would make it simple for small companies to take digital payments.

Caesar Sengupta, vice president of Google’s Next Billion Users, speaks during the launch of the Google “Tez” mobile app for digital payments in New Delhi on September 18, 2017.

Google Pay has more than 67 million monthly active users. And the corporation was so taken by the UPI pipeline that it suggested equivalent infrastructure be created in the United States.

The Federal Reserve suggested in August to create a new inter-bank 24-7 real-time gross settlement service to promote speedier payments in the country. Google advised (PDF) in November that the US Federal Reserve develop a real-time payment system like UPI.

According to Mark Isakowitz, Google’s vice president of Government Affairs and Public Policy, “after just three years, the annual run rate of transactions flowing through UPI is about 19% of India’s Gross Domestic Product, including 800 million monthly transactions valued at approximately $19 billion.”

More than 150 million people use Paytm each year to conduct transactions. According to Sharma, there are 55 million bank accounts and 300 million mobile wallet accounts overall on the network.

How do UPI Mobile payments firms make money? 

  • Commission income: All of these businesses have agreements with brands for a brand placement fee and with providers of everyday necessities like cellphone recharge, bill payment, DTH activation, etc. for commissions on spending. You’ve probably seen scratch cards with offers like an Rs. 250 discount on orders with an XYZ firm If you have an account with the firm specified on the scratch card, shares worth Rs. 1000 will be transferred to your demat account very frequently.
  • Subscription revenues: These businesses add to their income streams by charging a small transaction fee for each of the POS devices that are installed at kirana stores and allow customers to scan items and make payments.
  • Quick loan disbursements: As banks sometimes take time to analyse loan applications and approve loans, these apps began out with immediate loans, merchant loans, and personal loans. These loans enable them to earn 2.5% to 3.5% of the loan amount upfront.
  • Collection: These businesses also end up taking money from customers on behalf of their lenders, earning them 0.5% to 1.5% of the total amount of the current disbursement.
  • Data collecting for marketing services: Data may be utilised to develop new goods for the business or to assist other marketing firms in identifying market trends. Co-branded credit cards, for instance, offer an upfront distribution revenue and a lifetime usage charge.

Despite having so many sources of income and such optimistic figures for transactions, What, therefore, is the cause of these companies’ distorted revenue models?

Why do UPI apps not earn significant revenue?

  • MDR: Merchants must pay these companies a fee known as the merchant discount rate, or MDR, in order for them to facilitate transactions. However, in order to support and encourage UPI transactions across the nation, these fees were eliminated in 2020. So, despite having a large client database, payment methods are an unprofitable income source for businesses.
    Yet, it applies to credit and debit cards, a market that is comparatively smaller for businesses. Despite the Payment, only time will tell if the Council of India’s request for the government to rethink imposing MDR on consumers and merchants would enable services like Paytm, Phonepe, and Google Pay to become lucrative.
  • Lack of difference and high CAC: While accounting for over 86% of transactions, both Google Pay and PhonePe do not provide anything unique to the market. Hence, nothing special can be provided to keep customers. The bigger companies are kept on their toes by the greater customer acquisition costs (CAC) of these businesses. The rivalry is fierce with razor-thin margins because if they do nothing, their rivals would quickly take their portion of the market.
  • High rate of cash burn: When PhonePe announced its profit, it can be seen that personnel expenditures—which represent the company’s biggest expense—accounted for 47% of all costs. This results from the ability of ESOPs, or employee stock ownership plans, to keep talent. Moreover, spending on marketing and advertising increased 62% to Rs 866 million in FY22. In order to entice clients with alluring deals, businesses have been spending a lot of money.


As was already noted, these businesses have noticed a steady increase in the number of customers, which demonstrates a high level of consumer confidence and readiness to accept digital payments.

Google Pay just reached 15 crore users worldwide, of whom 7 crores are from India. Google Pay, PhonePe, and Paytm will eventually end up making more money, even if a 0.1% transaction fee is charged. This might fundamentally alter the industry, encouraging the current players to up their game and perhaps assisting new businesses to enter the market.

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IDcentral enables digital onboarding and secure transactions through a streamlined KYC and AML screening process.

You may personalise your payment process by integrating the IDcentral API stack with your current workflow. We have previously assisted neobanking platforms, NBFCs, wealth managers, fintech lenders, participants in the gig economy, and others in creating a safe and efficient payments environment for their enterprise.

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