The unit economics missing from every UPI pitch deck

UPI is one of the great public infrastructure stories of the last decade. It is also one of the hardest places to build a profitable business. Since January 2020 there has been no merchant discount rate on UPI payments, which means that the fee that pays for card networks does not exist here. A government incentive scheme pays banks a small amount on low-value merchant payments, but its size depends on each year's budget, and policy on pricing has shifted more than once.

Every pitch deck for a UPI business shows the transaction volume curve. Few show what a single payment earns and costs.

The revenue line is empty

On a typical UPI payment, the app that the customer uses earns nothing from the payment itself. Any incentive goes to the merchant's bank first and is shared down a chain of participants. For an app, payments are a way to acquire and keep customers, not a source of revenue.

That is fine, if the deck says so. The problem is decks that present payment volume as if it were revenue, or that assume a fee will return soon.

The cost line is not

Each payment still costs money:

• Technology and switching costs for running the service at scale and at the reliability customers expect.
• Failed and pending payments, which need reconciliation, refunds and customer support. A small failure rate on a large volume is a large number of support contacts.
• Fraud losses and the cost of preventing them.
• Customer acquisition, often through cashback, which trains customers to expect a reward for each payment.

Payment volume is a measure of reach. It is not a measure of revenue.

Where the money actually comes from

UPI businesses that make money do it next to the payment, not in it.

1. Credit. Payment data shows how a merchant or customer behaves, which supports lending. This is the largest prize, and the most demanding to do well.
2. Merchant services. Devices such as payment soundboxes, software and settlement services that merchants pay for every month.
3. Distribution. Selling insurance, investments or other products to a customer base that opens the app every day.
4. Advertising and offers, which work at scale and rarely below it.

Each of these has its own unit economics, its own regulation and its own risks. A credible deck shows which one the business depends on and how a payment customer becomes a paying customer.

Questions for any UPI pitch

• What does one payment cost, all in, including failures and support?
• What share of payment users become customers for something that earns money, and how long does that take?
• What happens to the business if incentives shrink, or if pricing rules change again?
• Is the business still viable if a market share cap or a competitor limits its growth in payments?

A UPI business can be a very good business. It is just not a payments business. The decks that admit that are the ones worth funding.