India will begin charging merchants on October 15 for some payments made through the Unified Payments Interface (UPI) network when the transaction value exceeds 2,000 rupees, or about $21. The National Payments Corporation of India (NPCI), which operates the network, said consumers will continue using UPI without direct fees, while merchants will bear the new charge.
The base fee is set at 0.4% of the transaction value, with a cap of 300 rupees for payments reaching or exceeding 75,000 rupees. Transactions not exceeding 2,000 rupees will remain free for merchants, and small merchants receiving up to 100,000 rupees per month through UPI will also be exempt.
Details Vary by Sector
The same rate will not apply to all activities. The railway, telecommunications, insurance and fuel sectors will pay a fixed fee of 5 rupees on UPI transactions exceeding 2,000 rupees, while capital-market transactions will be subject to a fee of 0.02%, capped at 300 rupees.
For comparison, the FAQs published by NPCI indicate that credit-card acceptance fees typically range from 1.5% to 2.5% per transaction, while debit-card fees are capped at 0.9%. However, the new fee remains an additional cost for businesses that have been accustomed to accepting UPI without charges since merchant fees were eliminated in January 2020 to boost digital-payments adoption.
Why Does This Change Matter?
NPCI’s figures show the potential scale of the impact. In August alone, UPI processed 24.51 billion transactions worth 29.9 trillion rupees, or about $312 billion. NPCI says payments of no more than 2,000 rupees account for more than 95% of merchant transactions by volume, meaning most everyday use will remain outside the fee’s scope, while larger payments, such as purchases of high-value goods and services, will be affected.
NPCI links the move to the need to make the network financially sustainable after years of expansion. It estimates the cost of operating it, including server capacity, fraud prevention and technical support, at about 200 billion rupees annually, or $2.1 billion. Revenue will be distributed among participants in the UPI ecosystem to fund infrastructure, cybersecurity, fraud prevention and customer service. NPCI also plans to establish a fund to expand digital-payments infrastructure and increase merchant acceptance in smaller cities and rural areas, with its details to be determined in cooperation with the Reserve Bank of India over the next three months.
The Test Will Come with Implementation
The new rules do not allow merchants to pass the fee on to customers, as NPCI says the 0.4% rate is low enough for them to absorb. But the practical impact will depend on merchants’ profit margins and their behavior regarding large payments. Some businesses may choose to reduce their margins or encourage other payment methods, particularly in low-margin sectors.
Payment companies that invested in the infrastructure needed to process UPI transactions, including Paytm, Pine Labs, PhonePe and Razorpay, are expected to benefit from the distribution of fees within the ecosystem. However, NPCI has not explained how it arrived at the annual cost estimate of 200 billion rupees, how much revenue is expected, or the mechanism for distributing it in detail.
These questions remain central because UPI’s value is not limited to the cost of a transaction, according to Krishnamurthy Subramanian, the former chief economic adviser to the Indian government, who described the network as digital public infrastructure that helps reduce reliance on cash and expand access to digital payments. Therefore, the decision’s success will not be measured by revenue alone, but by its ability to fund the network without weakening UPI’s appeal or slowing its use for larger payments.