India ends free ride for larger transactions on its ubiquitous digital payments network
India’s payments operator will start charging merchants a 0.4% fee on Unified Payments Interface (UPI) transactions above ₹2,000 from October 15, ending a period in which merchants could accept most UPI payments for free. Consumers will continue to use UPI without direct charges, while the fees will be capped and some sectors and small merchants will receive exemptions.
Why It Matters
UPI is the backbone of India’s digital payments system, handling tens of billions of transactions monthly, and officials say the new charges are needed to make the network financially sustainable and to fund infrastructure, cybersecurity and fraud prevention. How merchants respond — whether they absorb the cost or shift payment behaviour — could reshape payment choices for larger purchases and affect fintech companies in the ecosystem.
Key Facts
- Effective date: October 15, 2026
- Fee rate: 0.4% on UPI merchant transactions above ₹2,000
- Cap on fee: ₹300 cap for transactions of ₹75,000 or more
- Small-transaction exemption: Payments of ₹2,000 or less remain free for merchants
- Small merchant exemption: Merchants receiving up to ₹100,000 per month through UPI are exempt
India’s National Payments Corporation (NPCI), which runs the Unified Payments Interface (UPI), announced a 0.4% merchant charge on transactions above ₹2,000 that will take effect on October 15. The operator said consumers will still be able to use UPI without direct fees and that the charge will be capped at ₹300 for very large payments. NPCI also specified that some sectors — including railways, telecom, insurance and fuel — will face a flat ₹5 fee for transactions above the ₹2,000 threshold, while capital-market payments will attract a 0.02% levy capped at ₹300.
The change ends a policy that has kept merchant acceptance of UPI largely free since January 2020, when fees were scrapped to spur adoption. NPCI and industry participants have argued that the zero-fee model became hard to sustain as transaction volumes grew. NPCI estimates the annual cost of running UPI — including server capacity, fraud prevention and technical support — at about ₹200 billion, and says the new revenues will be shared among participants and used to invest in infrastructure, cybersecurity, fraud controls and customer service.
NPCI kept smaller-value payments largely outside the fee regime: payments up to ₹2,000 account for more than 95% of UPI merchant transactions by volume, the operator said. The newly announced levy also exempts merchants whose monthly UPI receipts do not exceed ₹100,000, and NPCI said it will work with the Reserve Bank of India over the next three months to set up a fund aimed at boosting digital payments infrastructure and merchant onboarding in smaller cities and rural areas.
The announcement leaves several open questions. NPCI did not provide details on how it derived the ₹200 billion cost estimate, how much revenue the fee is expected to generate, or exactly how the fee proceeds will be split across banks, fintechs and payment processors. NPCI also said merchants are not permitted to pass the charge on to customers, arguing the 0.4% rate is modest enough for businesses to absorb.
Industry participants that have invested in UPI processing stand to gain from the fee redistribution, with firms such as Paytm, Pine Labs, PhonePe and Razorpay named among potential beneficiaries. The practical test for the policy will be how merchants react once the charges apply: some may absorb the cost, while others — particularly those with thin margins or that process larger-ticket sales — might encourage alternative payment methods or adjust pricing strategies.