Can India Become Truly Cashless When Banking Itself Is Becoming Expensive for the Poor?
India has spent the last decade building one of the most ambitious digital-payment ecosystems in the world. From the vision of a “Digital India” to the rapid expansion of the Unified Payments Interface, the country has encouraged ordinary citizens, small shopkeepers, street vendors, workers and businesses to move away from physical cash and toward electronic payments. UPI has become extraordinarily successful: in July 2026 alone, it processed about 23.6 billion transactions worth approximately ₹29.9 lakh crore. Yet an uncomfortable question deserves to be asked: if the government wants India to become increasingly cashless, should the basic infrastructure required to participate in a cashless economy itself be made expensive for ordinary citizens? The contradiction becomes particularly visible when people encounter minimum-balance penalties, debit-card fees, ATM charges, service charges and other banking costs. A genuinely cashless India cannot merely mean encouraging people to stop using notes and start using bank accounts and mobile phones. It must also mean making digital participation affordable, accessible and sustainable for the poorest citizen.
There is, however, an important factual distinction that needs to be made at the outset. At present, ordinary bank-account-based UPI payments are not subject to a universal fee charged directly to customers. The recent controversy in August 2026 concerns proposed legal changes that could create a framework for merchant discount rates, or MDR, on certain UPI transactions. Reuters reported on August 4, 2026 that proposed amendments could create a legal basis for merchant fees, while discussions have included the possibility of applying charges above specified transaction thresholds and particularly to larger merchants. The government has subsequently stated that UPI users will not be charged for making UPI payments and that person-to-person transactions will remain free. It has also said that any future MDR, if introduced, would be limited and primarily concern certain merchant transactions rather than becoming a universal consumer fee. Therefore, it would be inaccurate to say that the government has already imposed a general charge on every citizen whenever they make a UPI payment. But the concern behind the question is nevertheless important, because the broader cost of maintaining a digital banking relationship can be significant, particularly for people with small and irregular incomes.
The real issue is therefore larger than UPI itself. It is about the economics of financial inclusion. A poor worker may receive wages directly into a bank account, receive a government benefit through digital transfer, pay a shopkeeper through UPI and use a debit card to withdraw cash when necessary. On paper, that person is completely integrated into the modern financial system. But if maintaining that account requires a minimum balance, if the debit card carries an annual fee, if ATM withdrawals beyond a prescribed limit attract charges, if additional banking services cost money and if small mistakes or temporary shortages trigger penalties, the person may discover that being “banked” does not necessarily mean being financially secure. The digital economy may be technologically free at the point of payment while still being expensive at the level of the underlying banking relationship.
This distinction is particularly important because income is not distributed evenly across Indian households. A salaried middle-class customer who maintains ₹10,000 or ₹20,000 in a bank account may barely notice a banking charge. A daily-wage worker, agricultural labourer, domestic worker, small street vendor or low-income pensioner may experience the same charge very differently. For someone living close to the margin, money sitting idle merely to satisfy an average-minimum-balance requirement has an opportunity cost. That money could otherwise purchase food, medicines, transport, school supplies or working capital for a tiny business. A charge of a few hundred rupees may look insignificant from the perspective of a bank’s operating economics, but it is not insignificant to a person whose daily disposable income may be only a few hundred rupees.
This is why the concept of financial inclusion should not be confused with merely opening bank accounts. The government’s own Pradhan Mantri Jan-Dhan Yojana recognises this principle. The Department of Financial Services describes PMJDY as a national mission for financial inclusion and states that its basic savings bank deposit accounts have no minimum-balance requirement. The scheme also provides a RuPay debit card and access to basic banking facilities. As of February 28, 2025, the government reported approximately 54.97 crore PMJDY accounts, with around 66.6 percent of the accounts located in rural and semi-urban areas. This is an important achievement, but it also demonstrates why the question of affordability cannot be ignored. The objective of financial inclusion is not simply to put an account number in the hands of a poor person. The objective is to make that person capable of using the formal financial system without being pushed out by its costs.
The Reserve Bank of India has long recognised this principle through the Basic Savings Bank Deposit Account framework. RBI regulations state that a Basic Savings Bank Deposit Account should have no minimum-balance requirement and that prescribed basic services are to be provided without charges. The framework includes cash deposits and withdrawals, electronic payment channels and an ATM or debit card facility, subject to the prescribed conditions. In other words, the Indian regulatory system itself contains an important answer to the problem: basic banking should be treated as a fundamental service, while charges should primarily relate to additional or value-added services rather than making the basic ability to hold and use a bank account inaccessible.
The problem arises when ordinary citizens do not clearly understand the distinction between a basic account and a regular savings account. Many people open whatever account is offered to them at a branch, through an agent or as part of an employment or financial relationship without fully understanding its minimum-balance requirements, debit-card charges, ATM conditions and other service fees. RBI rules have historically required banks to communicate minimum-balance requirements and applicable charges transparently, and where minimum-balance penalties are imposed, the charges must be reasonable and proportionate to the shortfall. RBI instructions also state that such charges should not cause a savings account to become negative solely because of the levy of minimum-balance charges. The existence of these safeguards is important, but regulation on paper and financial literacy in practice are two different things.
The issue becomes even more interesting when debit cards are considered. A debit card is not merely a luxury product for a person who has been encouraged to abandon cash. It can be the physical bridge between a bank account and the cash economy. A person may receive money digitally but still need cash to pay a small local vendor, travel in a rural area, purchase something from a business that does not accept digital payments, or deal with a temporary internet or electricity failure. Consequently, charging for the debit card or limiting free ATM access can create an awkward situation: citizens are encouraged to move away from cash, yet they are still required to maintain access to cash as a backup because India’s economy is not completely cashless. RBI’s framework for Basic Savings Bank Deposit Accounts specifically provides for an ATM/debit card without charges as part of the basic facilities.
There is also a philosophical question here. If digital payments reduce the cost of handling physical currency, transporting cash, maintaining cash counters and managing physical payment infrastructure, then the consumer should ultimately benefit from those efficiencies. The argument for digitalisation cannot simply be that technology makes payments easier for the citizen while the citizen continues to bear multiple layers of financial charges. A successful digital economy should create a virtuous cycle in which technology reduces transaction costs, greater transaction volumes reduce the average cost of infrastructure, competition improves services and consumers ultimately receive cheaper and better financial services.
UPI has demonstrated that such a model is possible. One of the reasons UPI became so successful is that it removed friction from everyday transactions. A person can send ₹50, ₹100 or ₹500 instantly without needing cash, a cheque or a card machine. A small shopkeeper can display a QR code rather than purchase expensive point-of-sale equipment. A customer can pay from a mobile phone without worrying about carrying exact change. This simplicity transformed everyday commerce. The success of UPI therefore provides an important lesson: when the government and financial system remove barriers rather than adding them, citizens adopt technology naturally.
But the economics of maintaining UPI infrastructure cannot simply be ignored either. Digital payments require servers, cybersecurity, fraud detection, authentication systems, telecommunications infrastructure, payment processors, banking systems and constant technological investment. As UPI volumes have exploded, payment companies and banks have argued that the ecosystem needs a sustainable revenue model. Reuters reported that the current debate about MDR is partly driven by concerns over the ability of payment companies and financial institutions to finance continued investment in the infrastructure supporting this enormous volume of transactions. This is a legitimate economic question. The mistake would be to answer it by shifting the burden disproportionately onto the people who can least afford it.
The distinction between the customer and the merchant is therefore crucial. If a merchant discount rate is introduced for certain large-value or large-merchant transactions, the government could theoretically structure the system so that ordinary consumers continue to make UPI payments without a direct fee. The government has indicated precisely such an approach, saying that any future MDR would be limited and that person-to-person payments would remain free. Whether such a system will ultimately remain affordable depends on how the rules are implemented and whether merchants attempt to pass costs indirectly to consumers. The danger is not necessarily a visible “UPI fee” appearing on every transaction. The danger could be more subtle: higher prices, convenience charges, restrictions on certain payment methods or additional costs imposed by intermediaries.
There is therefore a strong argument that India should distinguish between “digital payments” and “paid banking.” The government can encourage digital payments while simultaneously insisting that every citizen has access to a genuinely free or extremely low-cost basic banking layer. The poor should not be forced to choose between keeping enough money in an account to avoid penalties and using that money for everyday survival. A person should be able to receive government benefits, wages, pensions and remittances, make small UPI payments, access a basic debit card and withdraw a reasonable amount of cash without being trapped in a cycle of service charges.
The RBI’s own regulatory philosophy supports this idea. Its instructions regarding minimum-balance charges emphasise transparency, advance notification, proportionality and reasonableness. RBI has also taken enforcement action against banks for non-compliance. In February 2025, for example, RBI imposed a monetary penalty on The Nainital Bank after finding, among other issues, that it had levied minimum-balance charges at flat rates instead of charges proportionate to the extent of the shortfall. Such regulatory action demonstrates that the problem is not imaginary: the structure and implementation of banking charges matter, and banks are expected to follow customer-protection requirements.
The question of a cashless India should consequently be reframed. The objective should not be “How quickly can we eliminate cash?” but rather “How can we give every Indian the freedom to choose the cheapest, safest and most convenient method of payment?” Cash, UPI, debit cards and other payment instruments should compete on convenience and cost. If digital payment is genuinely cheaper and easier, citizens will naturally use it. There is little need to economically punish people for using cash when the digital alternative is genuinely attractive. The strongest digital economy is not one in which citizens are forced away from cash; it is one in which citizens voluntarily prefer digital payments because they are safer, faster, cheaper and more convenient.
This is particularly important for rural India. A smartphone, bank account and UPI application do not automatically eliminate the barriers faced by a rural citizen. Internet connectivity may be unreliable. Electricity may be interrupted. Phones can be lost or damaged. Elderly citizens may struggle with applications. People may be vulnerable to fraud. Small merchants may not understand digital settlement systems. A cashless policy that ignores these realities could inadvertently create a new form of exclusion. Digital inclusion must therefore include financial literacy, reliable connectivity, fraud protection, simple interfaces, accessible banking correspondents and an affordable mechanism for converting digital money into physical cash when necessary.
There is another uncomfortable reality: poor people often pay more for financial services because they have less financial flexibility. A wealthy customer can maintain a balance, avoid penalties, use premium banking services and absorb occasional fees. A poor customer cannot. The paradox is that the person who most needs inexpensive banking is often the person least capable of maintaining the conditions required for avoiding charges. This creates a regressive structure in which the formal financial system can unintentionally extract proportionally more from those with less.
That is why the phrase “financial inclusion” should carry a much stronger meaning. Inclusion should mean affordability, not merely access. It should mean that a person can open an account without being required to maintain an unrealistic balance, receive money without unnecessary deductions, make small digital payments without fear of hidden costs, possess a basic payment instrument without excessive annual fees, withdraw reasonable amounts when necessary and obtain clear information about every charge. PMJDY’s zero-minimum-balance structure demonstrates that India already has a policy model capable of doing this.
The government should therefore consider a clear “Basic Digital Banking Right” for ordinary citizens. Every individual should have access to at least one basic bank account with no minimum balance, no compulsory annual debit-card fee, free receipt of government benefits and wages, free or very low-cost UPI payments, transparent ATM rules and a reasonable number of basic withdrawals. Banks should be permitted to charge for genuinely additional services, but the basic infrastructure required to participate in the digital economy should remain affordable. Such a system would not destroy banking economics. Instead, it would establish a clear boundary between essential financial access and premium banking services.
Banks, of course, need revenue. They have employees, branches, technology, cybersecurity expenses, compliance obligations and infrastructure costs. It would be unrealistic to demand that every conceivable banking service be free. But the answer should be efficiency, competition and carefully targeted charges rather than a multitude of small fees imposed on customers who may not understand them. Banks can earn through lending, investments, merchant services, premium products and genuinely value-added services. The basic payment account used by a low-income citizen should not become an important source of penalty revenue.
India’s digital-payment revolution is one of its greatest technological achievements. The country has demonstrated that hundreds of millions of people can adopt a sophisticated real-time payment system at extraordinary speed. But technological achievement should not be confused with social success. A country can have billions of digital transactions and still have financially vulnerable citizens. A truly successful digital India will be one where technology lowers the cost of participation in the economy rather than creating new costs for those who can least afford them.
The present UPI debate makes this question especially timely. The government says ordinary users will continue to have free UPI access and that any future merchant charges would be limited rather than universal. At the same time, the broader banking system continues to operate with various categories of charges, while RBI rules already provide a protected basic-account framework for financial inclusion. The real policy challenge is therefore not simply whether UPI should have an MDR. It is whether India can build a financial system in which the poor are encouraged to enter the digital economy without being financially punished for doing so.
A cashless India cannot be built merely by putting a QR code outside every shop. It has to be built by putting affordability at the heart of financial policy. If a poor citizen has to worry about maintaining a minimum balance, paying a debit-card fee, paying ATM charges and understanding a complicated schedule of banking fees simply to remain connected to the formal economy, then the system is digital but not necessarily inclusive. The ultimate test of Digital India should not be the number of transactions processed every month. The real test should be much simpler: can an ordinary person with very little money participate in the country’s digital economy safely, freely and without being slowly drained by the cost of maintaining access?
India has already shown the world that a massive population can move rapidly toward digital payments. The next challenge is more profound. India must demonstrate that digitalisation can also be an instrument of economic equality. If the government wants citizens to leave cash behind, it must ensure that the alternative does not become another system in which the poorest citizen pays the highest relative price for basic financial access. A genuinely cashless India should not be an India where cash is made difficult and digital services become expensive. It should be an India where digital payments are so affordable, transparent and convenient that people choose them willingly. That is the difference between a country that is merely becoming cashless and a country that is genuinely becoming financially inclusive.
