💰 If UPI Is Free, How Do PhonePe and Paytm Make Money?

G GOWTHAM
UPI (Unified Payments Interdata-face) transactions themselves are free for users, meaning sending and receiving money via UPI doesn’t cost you anything. But companies like PhonePe and Paytm still operate as profitable businesses. How? Let’s break it down.

1. Merchant Fees (Business Accounts)

While person-to-person (P2P) transfers are free, businesses often pay small fees for UPI payments.

  • Businesses and merchants who accept UPI payments through PhonePe, paytm, or similar platforms may pay transaction fees or gateway charges for processing high volumes of payments.
  • Some platforms offer premium merchant services like detailed analytics, inventory integration, and marketing support, which generate revenue.
💡 Example: A small store using paytm for UPI payments may be charged a tiny percentage for bulk transactions or advanced tools.

2. Financial Products and Loans

Apps like PhonePe and paytm have expanded into financial services, including:

  • Wallet top-ups and prepaid services
  • Insurance, mutual funds, and credit cards
  • Instant personal and merchant loans
They earn commissions, interest, or service fees when users buy these products through the app.

📌 Example: If you buy health insurance through paytm, paytm earns a commission from the insurer.

3. Payment Gateway & Value-Added Services

  • Paytm Payment Gateway and PhonePe for Business allow online stores and apps to accept UPI, cards, and wallets.
  • They charge businesses a fee for this infrastructure or offer subscription-based services for analytics, dashboards, and marketing.
This is a major revenue stream, even though individual UPI transactions are free.

4. Advertising & Promotions

  • Both apps promote merchants, deals, and offers inside the app.
  • Merchants pay for featured listings, ads, or cashback campaigns to attract users.
💡 Example: PhonePe often runs campaigns like “Cashback on food orders” funded by merchant partnerships, which also generates revenue for PhonePe.

5. Cross-Selling & Upselling

  • Apps use UPI as a hook to get users on their platform.
  • Once users are engaged, they cross-sell other paid services, such as bill payments, gift cards, mobile recharges, or financial products.
This approach converts high user volume into indirect revenue, even if simple money transfers are free.

⚡ Summary

Revenue Source

How It Works

Merchant Fees

Small charges on business transactions, premium services

Financial Products & Loans

Commissions, interest, or service fees on insurance, mutual funds, loans

Payment Gateway & Value-Added Services

Subscription, analytics, and infrastructure fees for online stores

Advertising & Promotions

Paid promotions, featured listings, cashback campaigns

Cross-Selling & Upselling

Using UPI as a user acquisition tool to sell paid services

Even though sending money via UPI is free for users, PhonePe, paytm, and other apps make money by monetizing businesses, financial products, and value-added services — turning high traffic into profit.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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