A number of people have come out and said that the government's moves on removing what was at one time thought to be free UPI is a regressive move. That it has been taken under pressure and so on and so forth. Now the politics sits on one side, viewers, as you know, but let's talk substance and let's talk with the PhonePe CEO, Mr. Nigam. He's here with us. Thank you so much for taking the time out. Let me ask a very basic question, sir. UPI became successful precisely because it was free. Does putting an MDR on transactions above 2,000 now risk weakening the biggest advantage UPI has over cards? Because many people are seeing this as beneficial to Visa, Mastercard, you know, that whole other ecosystem.
Thanks for having me on your show, Raul. Let me break my response into two parts. You open by saying UPI was successful precisely because of zero MDR. Fact of the matter is, UPI had an MDR of 0.65% from 2016 till 2020, just like debit cards in India. And I hope you'd remember UPI's first major accelerant was actually during demonetization. That's when cash disappeared and all the UPI apps suddenly were available for peer-to-peer transfers. The single most popular use case in UPI for the last 10 years is actually peer-to-peer money transfer, which was, is, and will continue to be completely exempted from any kind of MDR to begin with. There's no merchants in play.
The second was, by 2020, when zero MDR came in, all of the large, what we call the premium outlets, all had POS devices accepting both credit cards, digital wallets, and UPI. And they were already paying the MDR, not just on transactions above 2,000. By the way, back then they were paying on transactions below 2,000 as well. Same with all the online players. They never asked for nor expected UPI to be free. The reason the government made UPI free, their stated mission was that for the small merchants, there was this belief that if UPI is not free, that the small merchants will never become part of the inclusion drive. Now, whether as a marketing sort of plan or in terms of real impact, whichever way, it has been a great success. There's no denying the fact that very small businesses or merchants, or you know, the telas and kiranas and sabzi walas, have all adopted UPI.
But I think to that point, right now, there is a massive explosion in UPI transactions in the last six years. Massive. Over 500 million Indians are using it every year and as media also keeps reporting frequently, UPI is now the world's largest digital payments transaction network. Now we can celebrate that all the time and I'm very proud of being part of that ecosystem. But fact is, 500 million Indians transacting across 20-30 million shops comes with a cost. The significant capex, this investment behind cybersecurity, risk, fraud, chargebacks, KYC, the compliance burden on the industry is increasing every passing year. And now AI-related threats. So at the end of the day, the question is about how to make the industry sustainable while still having enough money to also rapidly continue growing. The dream was never 500 million Indians. The dream is a billion Indians on UPI, and that requires more capital.
Over the last five years, six years, the industry has invested close to about $5 billion of equity. This is coming on the back of losses after losses on every fintech and bank player on the UPI P&L. That's why we have all been actively lobbying, saying we need a sustainable revenue model in line with the rest of the world. And by the way, even within India, in line with the rest of the payment instruments, even NEFT and RTGS are not free. Why should UPI be free to merchants?
So two questions here. Two questions. Why can't, instead of charging MDR, the body that operates this ecosystem make profits? Why can't those profits be reinvested to maintain this architecture, which is now of course expanding, one. And two, Visa and Mastercard will be the biggest beneficiaries, some people are saying. So that advantage of UPI over cards is being narrowed and many people are attributing other motives to it. And, you know, and I'm going with this. So could you explain that?
So on your first question, I'm assuming you're talking about NPCI as the body that runs the network. I think their entire balance sheet life till date is probably about 7-8 thousand crores. On an annual basis, FY26, FY27 money has also not been paid out. Because what the industry highlighted, this is hard data. In FY24, the government actually paid out 3,900 crores, sir, because that was linear to the MDR loss to industry that used to exist. By FY25 and FY26, that number had crossed 7,000-8,000 crores. This year, if the government truly wanted to compensate, I'm not even talking about making profits, compensate all of the investment of banks and fintechs, that number would be about 10 to 12 to 14 thousand crores. Investment that is in that range. So, neither NPCI's life till date profits nor what the government was paying as a subsidy can support the scale at which this infrastructure runs. Point number one.
Point number two, UPI's spectacular success is precisely because they are actually incredibly innovative in recognizing that India is a phone-first economy. Visa and Mastercard were not able to compete in 2016 through 2025 because they were operating in a card economy, where the acceptance network requires expensive POS devices. Just last week at the recent Global Fintech Fest, PhonePe has partnered with Visa as well and we finally launched a tap and pay using your phone, what is popularly in the west seen with Amazon Pay and Apple, I mean Google Pay and all these companies. So we don't give UPI enough credit, they were actually just way more innovative. Point number one.
Point number two, I see on your ticker, scan the QR code and subscribe to our channel. And I'm laughing because 10 years ago nobody in India had heard of the QR code. We should be so proud instead of trying to pillory everybody. Okay, let me ask you this. The government says that roughly 96 percent of transactions will remain unaffected because they fall under the rupees 2,000 threshold, fair enough. But is transaction volume the right metric? Could the effective 4 percent accounts, and we know the numbers, they form a disproportionately large share of UPI's transaction value? And certain people say that that's really where the economy will start taking a hit because small businesses, people operating on smaller margins, etc., will get hit and they'll have no choice but to pass this on to the consumer.
So let's break this down from the consumer side and then the merchant side, right? For the customer, NPCI and the government have said, merchants can't transfer the cost across. Now I know there's debate about whether that will happen or not. But the law is pretty clear and the intent is pretty clear. All P2P was and is and continues to remain free, all P2M or merchant transactions were, are and continue to remain free on the consumer side. So consumers' first preference will still be to pay using UPI over cash, it has become a way of life across a very large swath of society.
Now let's come to the merchant side, as you correctly said, 96% of the time when a customer walks into the shop there is no MDR getting applied, so it isn't the rarest of rare, the 4%. Now, as part of, as overall value, yes, it is 65%, but even that needs to be contextualized. Petrols are a very big part of the economy. In petrol, the MDR is not 0.4%. Very wisely, the government and or NPCI have explicitly stated 5 rupees is the maximum transaction charge. The average petrol purchased in India between commercial and retail is about 6,500 rupees. So 5 rupees is nothing of nothing. Point number one.
Second, where are big ticket transactions happening? Where the value is high? Broking. Capital markets basically. The MDR is 0.02%, not 0.4%. It is 1/20th that of e-commerce or retail. Insurance, capped at 5 rupees. Agri, capped at 5 rupees. So some of the biggest spending sectors are actually capped. On the retail side as well, while it is 0.4%, above 75,000 rupees, there's no incremental charge because at 70,000 they've put a cap of 300 rupees on the MDR per transaction, which means if I buy a one and a half lakh iPhone, effectively I'm paying 20 basis points not 40 basis points. So I think sector by sector NPCI has taken extreme care and caution to make sure no one's feeling the pinch in a way that will become unsustainable or become an irritant that could even possibly drive UPI volumes down. We don't believe it will either as an industry.
The reason I get that confidence is that about three years ago, NPCI introduced its own credit card, RuPay. Which by the way is the only credit card that runs on the UPI rails itself. It works on every UPI QR code in the country and 98 percent of our merchants are accepting RuPay credit cards today. And the MDR there is almost two percent, sir. So 0.4 is nothing.
Let me ask you this on the broking point. We've had Mr. Kamath of Zerodha come out and say that MDR is reasonable, but a 300 maximum charge makes sense for a merchant selling you something. It doesn't make sense when a broker is merely moving your own money in and out of your trading account. How do you respond to that?
On that specific case, I know that even NPCI has taken cognizance of it. Again, MDR is applied in two different ways. It's called industry programs and non-industry programs. Industry programs, like I mentioned, all OMCs with a max 5 rupee charge, recognizes the economics of that category. Bill payments is also capped at 5 rupees on transactions over 2,000 because certain categories don't have the operating margin. A broker receiving money as in put, Nitin has a point, if that money is not invested then he is not earning. Now it's a nuanced problem because SEBI also further introduced the rule saying any uninvested money must be refunded at the end of the month. So you could truly just have money going round and round. I think, I know NPCI is looking at it. If the 0.02% hasn't solved for it correctly, and it's a mismatch between when money is transferred versus when it's invested and Zerodha earns money. I'm sure Nitin would have reached out, he's a resourceful guy, smart guy. I'm sure he would have reached out to NPCI, I'm sure they're looking at it. And again these irritants will get ironed out, I'm confident of that.
