Merchants May Face High-Value UPI Fees
The Indian government is reportedly considering imposing charges on merchants for high-value UPI transactions. While no policy has been finalized, the move could shift the cost structure for businesses that rely on UPI for larger ticket-size orders.
The current zero-MDR (Merchant Discount Rate) policy on UPI and RuPay transactions was instituted on January 1, 2020, to spur digital payment adoption. Before this, merchants paid a small percentage of the transaction value to banks, but the government waived these fees to encourage a cashless economy. The debate over fees stems from the costs incurred by banks and payment service providers for maintaining the UPI infrastructure. In August 2022, the Reserve Bank of India (RBI) released a discussion paper on charges in payment systems, noting that service providers need to recover costs to ensure continued operations and innovation. In response to the ongoing cost debate, the National Payments Corporation of India (NPCI) introduced a 1.1% interchange fee, effective April 1, 2023. However, this charge applies only to merchant transactions above ₹2,000 made via prepaid payment instruments (PPIs) like digital wallets, not to standard bank-to-bank UPI payments, which remain free for merchants. The government has consistently maintained that UPI is a "digital public good" and has officially denied any plans to levy MDR on regular UPI transactions. To offset the costs for payment service providers under the zero-MDR regime, the government has provided incentive schemes, though the industry argues these are insufficient to cover the full cost of the digital payment infrastructure. Despite the zero-MDR mandate on direct UPI payments, some merchants may still see costs in the form of "platform fees." These are charged by payment gateways for providing the technology, infrastructure, and services like automated reconciliation that enable reliable transaction processing. Furthermore, banks like ICICI, Axis, and Yes Bank have begun levying UPI transaction fees on payment aggregators (PAs). Since PAs are not directly covered by the zero-MDR subsidy, this cost is often passed down to merchants through other fees, creating an indirect cost structure even for "free" UPI transactions. The scale of UPI is immense, with transactions in May 2025 reaching a total value of ₹25.14 lakh crore. This massive volume underscores the financial sustainability concerns for the ecosystem's players and is the primary driver behind the continued discussions around a long-term, viable pricing structure.
