Govt gets a seat on India's new payments regulator. Here's why

Last week, the government notified rules to set up a Payments Regulatory Board, replacing the existing Board for Regulation and Supervision of Payment and Settlement System. It will be chaired by the Reserve Bank of India (RBI) governor, and will have two other RBI members. The central government will nominate three representatives.

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“UPI is a digital public infrastructure like Aadhaar. We’re talking about the payments infrastructure in the country, which is a national critical asset," said Vivek Mandhata, managing director and partner, Boston Consultancy Group (BCG). “So the government and regulator together have to define the path, and that's probably the intention why this kind of a committee structure is being set up."

The UPI platform processed a record 186 billion transactions worth ₹261 trillion in FY25. Monthly transaction volumes touched a high of 18.3 billion in March 2025, amounting to ₹ 24.8 trillion—up 36% on-year by volume and 25% by value, Mint had reported on 4 April. According to the latest data by the National Payments Corporation of India (NPCI), the numbers moderated to 17.9 billion transactions worth ₹23.9 trillion in April.

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UPI charges

The government has been footing a large part of the bill for digital payments as it hands out UPI-related incentives.

“UPI is a national crown jewel, and the government wants to control it as much as RBI needs to. And this tussle has been going on for a while now," a senior industry executive said on the condition of anonymity.

"Every time UPI goes down for even 30 minutes, it's crisis mode. And at that scale, the government looks at this as a very important asset to monitor and manage," the executive said. “It's been 2-3 years now since there's been a push to bring proper economics into the UPI ecosystem. But the holding back is happening through the Centre because they don't want this jewel to get any tarnish at this point."

Ranadurjay Talukdar, partner and payments sector leader at EY India, said growing discussions around making UPI chargeable have warranted the need to acknowledge industry voices.

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“It has become almost a political necessity now with the finance ministry needing to step in to clarify every time there is talk of making UPI payments chargeable," he said. "Even so, it is the banks that have been incurring a bulk of the cost, spending crores for digital infrastructure upgrade and upkeep to keep up with the growth in UPI transaction volumes. However, they have made little in terms of UPI revenue," Talukdar said.

“A lot of it has been thrust down upon the Indian financial services sector by the government and the RBI, and this might finally be an opportunity for banks to actually also be heard in this in this whole bargain," he said, adding that this would include examining what is sustainable such as in terms of physical KYC (know your customer) of merchants.

Strategic needs

The need for government representation may have also been driven by the need to supervise how money flows in and out of the country. Given that the government and the regulator then have equal stake in policy-making, it would make sense for them to come together for more transparent decision-making rather than one party first formulating the policies and then influencing the other, say experts.

Rahul Jain, chief financial officer at NTT Data Payment Services India, cited the example of the Mahadev betting app case. Such incidents have warranted the need for the government to monitor money going out of the country.

“The government viewpoint seems to define a certain unified methodology so that people don’t have to struggle with multiple departments and processes," Jain said, adding that this would also allow much better coordination between government agencies and RBI because there are still a lot of moving parts such as the legal or cyber security aspects which the RBI cannot address itself independently, being a regulator.

The creation of the Payments Regulatory Board has been in discussions since 2017 when an inter-ministerial committee recommended setting up an independent regulator for payments-related matters, chaired by a government representative. The RBI had written back to the government in October 2018, advocating that regulations remain within the central bank. The apex bank had then recommended setting up a Payments Regulatory Board headed by the RBI governor with a casting vote, and the government may nominate three members.

The government has now notified the ‘Payments Regulatory Board Regulations, 2025 to set up the new regulator. 

"RBI is still going to be in the driver's seat, in terms of policy setting. They just have the opinion of other stakeholders coming into the process more formally," BCG’s Mandhata said, adding that there is an urge to simplify and strengthen the overall payments ecosystem.

In the current environment, payments is a critical “nerve centre" to control and maintain independence from a geopolitical stability standpoint, according to Mandhata. The government would want to have an overview on the work being done on cross-border payments, including UPI going international and anti-money laundering, which will influence some strategic priorities of the nation, he said, adding that collaboration in this regard would help speed up the pace of change or response in terms of policy and regulation making.

EY’s Talukdar believes government representation could lead to more uniform policies on aspects such as cryptocurrency, gaming platforms, treatment of foreign operators, and the entry of social media platforms such as WhatsApp and X into the payments space. "If this is a success, there may be areas like digital lending, which is another sensitive area, or MSME lending, where the government could play a role in deciding the course of future policy-making."

Beyond RBI’s scope

Some believe the RBI’s role is limited in terms of regulating fintechs and payments platforms, whereas the government might offer a more holistic approach in the regulation of the digital public infrastructure.

“The government has a much bigger plan on the digital public infrastructure front. It is designing a lot of products such as ONDC, Unified Energy Interface (UEI), and the one thing on their agenda is how to bring interoperability in many of the aspects," NTT Data's Jain said.

“And there is a big incentive for the government because they don't want the economy to move back towards a cash economy, so they want to be involved as much in influencing that policy," he said.

The expanded scope of the board is also expected to include a focus on issues such as finding solutions for increasing cases of cyber fraud, customer grievance redressal and on growing homegrown networks such as UPI and the RuPay card network.

“Another growing area of discussion has been CBDCs (central bank digital currencies)," said EY India’s Talukdar. “Given all that is happening, there would definitely be an imperative or greater push for CBDC interoperability across countries, which is a much bigger agenda for the government than the RBI because it directly impacts trade and reliance on the US dollar."