India’s Unified Payments Interface (UPI), the world’s largest real-time retail payments system by volume, is set to introduce a 0.4% merchant fee for transactions exceeding 2,000 rupees ($20.84), according to an announcement by the National Payments Corporation of India (NPCI). While person-to-person transfers will remain free at the point of use, the upcoming change alters a zero-cost model that drove a tenfold increase in transaction values to 213 trillion rupees over six years.
Why India Is Ending Zero-Cost UPI Transactions
The Ministry of Finance and digital infrastructure providers argue that maintaining the rapid growth of the payments network requires continuous upgrades to cybersecurity, server capacity, and fraud prevention. According to Ishan Sharma, head of growth at payments infrastructure provider Juspay, growing operational costs make reliance on pure subsidies unsustainable.
Under the NPCI framework announced on Tuesday, transactions above 75,000 rupees will face a capped fee of 300 rupees per transaction. Proponents of the shift emphasize that the 0.4% merchant discount rate remains far below the 0.9% charged on debit cards and the 1.5% to 2.5% standard for credit cards.
Did you know? UPI processes more than 1.1 million transactions every two minutes, accounting for roughly 85% of digital payments in India and 50% globally, according to NPCI data for September.
Merchant Concerns and Economic Impact
Small businesses and restaurant owners have raised concerns over how the new fee structure will affect profit margins. Jacob, a restaurant owner cited by Channel NewsAsia, estimated that monthly UPI payments across his establishments reach 10 million rupees. A merchant fee would extract a significant amount from a business operating on a 7% to 8% profit margin.
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National Restaurants Association of India representative Anurag Kalra noted that while a fee might be absorbed by high-volume eateries, a higher rate forces business owners to reevaluate transaction methods. Meanwhile, wholesalers note that percentage-based fees create disproportionate costs because the underlying technology expense of processing a 50,000-rupee transfer is identical to a 500-rupee payment.
Fintech Revenue and Competitor Dynamics
Major fintech players have divergent views on the adjustment. Amazon Pay director of payment experience Girish Krishnan told CNBC that the framework preserves baseline zero-cost adoption for small shopkeepers while introducing necessary revenue streams. Paytm executives stated the measure will generate fresh income from merchant services.
According to an Ambit Capital report, the 0.4% fee on transactions over 2,000 rupees unlocks a revenue pool of up to 245 billion rupees ($2.5 billion) for the sector. While transactions above that threshold represent only 4% of merchant payment volumes, they account for 67% of total transaction value, according to Reuters data.
Counterpoint Research vice president Neil Shah told CNBC that the 0.4% rate heavily undercuts traditional credit cards, leaving merchants with a strong economic incentive to keep utilizing UPI rails over Visa, Mastercard, or American Express networks.
Pro Tip: Businesses managing high-value transactions should analyze monthly volume distributions to assess whether adjusting checkout flows or customer incentives helps offset new merchant discount rates.
Frequently Asked Questions
Will regular consumers have to pay to use UPI?
No. According to the NPCI, person-to-person UPI transactions and smaller retail purchases under 2,000 rupees remain entirely free for end users.
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What is the exact merchant fee for large UPI transactions?
Merchants will pay a 0.4% fee on payments exceeding 2,000 rupees ($20.84), with a maximum cap of 300 rupees per transaction for amounts above 75,000 rupees.
How does the UPI merchant fee compare to credit cards?
The new 0.4% UPI merchant rate remains significantly lower than standard credit card processing fees, which typically range between 1.5% and 2.5% in India.
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