A new report from McKinsey titled 'How instant payments are transforming the financial landscape' shows that India is now a global leader in digital money. UPI is processing over 19 billion transactions every month. This accounts for nearly one-third of all transactions in India. However, this success is creating a new challenge for bank officers: how to earn revenue when payments are free.

Traditionally, banks earned money from card payments through transaction fees. But UPI works differently. It grew because of zero fees for customers and merchants, government subsidies for small transactions, and the support of major banks. Because there are no direct fees on UPI, the old way of making money from payments is under heavy pressure. Banks can no longer rely just on the act of moving money to stay profitable.

According to the August 2026 report, banks and fintech companies must now look at 'value-added services.' Instead of charging for the payment itself, banks are being urged to use the payment data to sell other products. This includes lending (giving loans), insurance distribution, and merchant solutions (tools for shopkeepers). The report says that while instant payments have low costs, their real value lies in building better customer relationships.

In India, the shift is already happening. Banks are using UPI for everyday small payments but are pushing premium credit cards and special merchant tools to earn profits. Fintech companies are also following this path. They take their large base of UPI users and try to sell them personal loans or insurance policies. The data generated by billions of UPI transactions helps these firms understand which customers are likely to pay back loans.

There is also a change in how credit cards interact with UPI. The report mentions that allowing RuPay credit cards on UPI is a smart move. It shows that instead of fighting UPI, card companies are trying to join the system. In markets like India and Brazil, instant payments have moved beyond just sending money to friends. They are now used for government payments and business deals, slowly replacing cash and even debit cards.

For bank staff, the message is clear: infrastructure alone is not enough. Success comes from having many people use the system and constantly adding new features. The report notes that India succeeded because it combined a strong value proposition (it is easy and free) with broad participation from all banks.

Regarding future income, there is news from the government. Parliament recently passed the Taxation and Other Laws (Amendment) Bill, 2026. This creates a rule book for potentially charging a Merchant Discount Rate (MDR) on UPI. MDR is a fee that shopkeepers pay to banks for processing digital payments. However, the government clarified that UPI will stay free for regular people and small shopkeepers. If fees are introduced, they will only apply to specific large transactions at a very low rate.

As we look ahead, Indian bankers must prepare for a world where payments are a 'door opener' rather than a 'profit maker.' The goal for the next few years will be converting UPI users into loan and insurance customers. Watching how the government decides to handle MDR will also be critical for bank balance sheets.