UPI merchant fees are here. India has finally put a price on larger transactions on its ubiquitous digital payments network, ending years of free processing for merchants. The country’s Unified Payments Interface will impose UPI merchant fees of 0.4% on certain payments above ₹2,000 (about $21) starting October 15, the National Payments Corporation of India (NPCI), which operates the network, said on Tuesday. Consumers will continue to use the service for free.
The move marks a major shift for a payments system that has been free for merchants to accept since 2020. It has been long anticipated by the payments industry, which has argued that the zero-fee model made it difficult to cover the growing cost of operating the network.
How UPI Merchant Fees Work
The new fee structure introduces several tiers, caps, and exemptions. Understanding these details matters for merchants, fintech firms, and anyone tracking India’s digital payments economy.
Standard transactions: A 0.4% merchant fee applies to payments above ₹2,000.
Fee cap: The charge is capped at ₹300 (about $3) for transactions of ₹75,000 (around $783) or more.
Small transactions: Payments of ₹2,000 or less remain free for merchants.
Small merchants: Those receiving up to ₹100,000 (about $1,041) a month through UPI are exempt.
Specific sectors: Railways, telecom, insurance, and fuel pay a flat ₹5 (about 5 cents) fee on transactions above ₹2,000.
Capital markets: These transactions attract a 0.02% fee, capped at ₹300.
For context, credit card merchant fees typically range from 1.5% to 2.5% per transaction, while debit card fees are capped at 0.9%, per an NPCI FAQ. Even with the new charges, UPI merchant fees remain well below card processing costs.
Why India Is Introducing UPI Merchant Fees
India scrapped merchant fees on UPI payments in January 2020 to boost adoption. The government has since subsidized banks and payment firms for processing some of those transactions. However, authorities have argued for months that the cost of operating UPI at such a vast scale makes the current model unsustainable.
Industry estimates cited by NPCI put the annual cost of running the network—including server capacity, fraud prevention, and technical support—at about ₹200 billion ($2.1 billion). The newly announced UPI merchant fees will be distributed among participants in the UPI ecosystem and used to fund infrastructure, cybersecurity, fraud prevention, and customer service.
In August, New Delhi laid the groundwork for the shift by amending India’s payments law to allow merchant fees on some UPI transactions. A notification issued on Monday specified that banks cannot levy charges on UPI payments of up to ₹2,000, clearing the way for fees on larger transactions.
UPI’s Scale and the Stakes Involved
UPI has emerged as the spine of India’s digital payments economy. The network processed 24.51 billion transactions worth ₹29.9 trillion (about $312 billion) in August alone, according to recent NPCI data. Its ubiquity has made scanning a QR code one of the most common ways to pay in India.
The shift has raised questions over whether charging merchants could chip away at one of UPI’s biggest attractions: its cost. Even though consumers will not be charged directly, businesses accepting larger payments will now have to absorb a fee that did not exist before.
Krishnamurthy Subramanian, a former chief economic adviser to the Indian government, noted that UPI should be treated as digital public infrastructure whose benefits extend well beyond individual transactions. These include reducing reliance on cash, bringing more businesses into the formal economy, and widening access to digital payments.
“The right question is: what is the opportunity cost of charging UPI transactions and what are its social benefits?” Subramanian wrote in a post on X.
What This Means for India’s Cash Economy
The debate also comes as India continues to bear the cost of maintaining a vast cash network. Currency in circulation is still growing at double-digit rates even as cash accounts for a declining share of individual transactions, as the BBC recently reported, citing data from the Reserve Bank of India.
NPCI has sought to limit that risk by keeping smaller transactions outside the new fee regime. Payments of up to ₹2,000 account for more than 95% of UPI merchant transactions by volume, it said.
The payments operator also plans to use part of the UPI merchant fees to create a fund aimed at expanding digital-payment infrastructure and merchant adoption in smaller cities and rural areas. The fund’s details will be worked out with India’s central bank over the next three months, NPCI said.
Which Companies Could Benefit
The new UPI merchant fees could provide a revenue boost to payment companies that have spent heavily building the infrastructure to process UPI transactions. Fintech firms including Paytm and Pine Labs, as well as IPO-bound PhonePe and Razorpay, are among the companies that could benefit as the merchant fee is distributed across the payments ecosystem.
That said, the bigger test will come once the fees take effect. The key question is whether merchants absorb the added cost or encourage customers to use other payment methods, particularly for larger purchases and in businesses with thin margins.
Merchants will not be allowed to pass the fee on to customers, NPCI said, arguing that the 0.4% charge is low enough for businesses to absorb. Consumers will continue to pay the listed price regardless of whether they use UPI.
Key Takeaways
Consumers pay nothing extra when using UPI.
Merchants face a 0.4% fee only on transactions above ₹2,000.
Small merchants earning up to ₹100,000 monthly are exempt.
The fee is capped at ₹300 per transaction.
Revenue funds infrastructure, cybersecurity, and fraud prevention.
A new fund will support digital payment adoption in smaller cities and rural areas.
NPCI did not respond to questions about how it arrived at the ₹200 billion annual cost estimate, how much revenue it expects the new UPI merchant fees to generate, or how that revenue will be distributed across the UPI ecosystem.
