India's Unified Payments Interface eliminated most of the fees apps like Paytm charged for transactions, forcing them to search for other sources of income
Manish Singh / TechCrunch : Tweets: @refsrc Tweets: Manish Singh / @refsrc : After signing up hundreds of millions of users in India, mobile payments firms switch to lending and lean on merchants in search of a business model https://techcrunch.com/...
Context & Ripple Effects
By April 2020, UPI — the NPCI-run nonprofit rail used by close to 300M individuals and 50M merchants — had made person-to-person and much merchant payments effectively free, stripping apps like Paytm of the transaction fees that were supposed to fund their growth. The timing compounded the pain: weeks earlier, the central bank's seizure of Yes Bank had already disrupted transactions on rivals like PhonePe.
First-order effects
- Paytm and fellow UPI apps lose their core per-transaction revenue overnight and must immediately lean on lending and merchant-side services to cover the cost of serving hundreds of millions of users.
Second-order effects
- Merchants become the monetization battleground — apps compete to distribute credit and value-added services to the 50M-strong merchant base rather than to charge consumers, while NPCI's free rails squeeze card networks, a pressure India later formalized by pushing RuPay with exclusive UPI use against Visa and Mastercard.
Third-order effects
- Payments infrastructure settles into a regulated, near-zero-take-rate utility, pushing fintech business models onto adjacent financial products — a dependency later exposed when the RBI's clampdown on Paytm Payments Bank cut off a key banking partner before regulators cleared Paytm to resume adding UPI users eight months on.
The trend: State-built, zero-fee payment rails are forcing fintechs to monetize through lending and merchant services rather than transaction fees, making regulator relationships as decisive as user scale.