India to impose controversial fee for UPI instant payments: Who benefits?

India will start charging a fee on certain Unified Payments Interface (UPI) transactions, ending a decade-long zero-fee policy for many merchant payments. From October 15, a 0.4% Merchant Discount Rate (MDR) will apply to business payments above 2,000 rupees, with caps and additional flat fees for some service payments.

By AI NewsroomPublished about 2 hours agoUpdated about 2 hours ago0 views

India to impose controversial fee for UPI instant payments: Who benefits?

Why It Matters

UPI is a central pillar of India’s digital payments system, handling enormous daily volumes and supporting financial inclusion; changes to its fee structure could affect merchant behaviour, fintech revenues and the wider payments ecosystem. The policy shift also sparked political debate over who will shoulder the costs and whether the move benefits domestic players or external interests.

Key Facts

New fee: 0.4% MDR on UPI transactions to businesses above 2,000 rupees, capped at 300 rupees, effective October 15
Flat fees for some services: A flat five-rupee fee will be imposed for payments such as fuel, railway tickets and telecom bills
Person-to-person transactions: Remain free of charge
Scale of UPI (most recent month): 24.51 billion transactions in one month (about 791 million per day), worth more than $10 billion daily
Scale of UPI (last financial year): 241.6 billion transactions worth nearly $3.3 trillion, supported by 741 banks

India’s payments regulator has set a new charge schedule for the Unified Payments Interface (UPI), moving away from the decade-long zero-fee model that fuelled rapid adoption. The National Payments Corporation of India (NPCI) announced a 0.4% Merchant Discount Rate (MDR) on business payments above 2,000 rupees, with the fee capped at 300 rupees and coming into force on October 15. Separately, certain service payments such as fuel, railway tickets and telecom bills will incur a flat five-rupee charge, while person-to-person transfers will remain free.

The government frames the MDR as a mechanism to cover operating costs and to sustain “viable revenue” for participants in the UPI ecosystem. Officials said revenue from larger merchant transactions will be distributed among banks, payment service providers and UPI application providers to support infrastructure expansion, innovation and cybersecurity. Analysts cited in reporting estimate the annual revenue pool from the change at about 170 billion rupees, with roughly 60% going to banks, 25% to app providers and 15% to aggregators.

UPI’s size and reach set it apart globally: in the most recent month reported, the system handled 24.51 billion transactions—around 791 million transactions per day—processing more than $10 billion daily. Over the last financial year UPI processed 241.6 billion transactions worth nearly $3.3 trillion and is linked with 741 banks. Its ubiquity has been credited with accelerating the decline of cash across India and has been showcased by the government as a model for digital payments both domestically and in some foreign markets.

The move has provoked pushback from merchant groups and political opponents. The Retailers Association of India warned that charging merchants could discourage UPI acceptance among small businesses, undermining efforts to formalize the economy. Politically, opposition figures have accused the government of yielding to outside pressure and enabling competitors; the charges have also prompted some merchants to begin passing costs to consumers, despite a government prohibition on surcharging. Small-business owners quoted in reporting say added fees will force them to raise prices, while fintech companies have long argued that high UPI volumes constrained direct monetisation despite other revenue opportunities from large user bases.