Larger merchant transactions through the Unified Payments Interface will carry a fee from October, ending the principle that virtually every UPI payment should be free — while leaving ordinary person-to-person transfers and the overwhelming majority of smaller merchant transactions untouched.
From 15 October, specified merchant UPI transactions above ₹2,000 will attract a Merchant Discount Rate of 0.4%. At current exchange rates, ₹2,000 is roughly €19.
The change does not affect person-to-person transfers, which will remain free regardless of their size. Merchant payments up to ₹2,000 will also remain free, as will transactions falling under protections for smaller merchants. The Indian government estimates that around 96% of person-to-merchant UPI transactions will therefore remain unaffected.
That strategy encouraged merchants and consumers to abandon cash at extraordinary speed.
“Nevertheless, the decision represents an important shift. India spent years deliberately constructing UPI as effectively free public digital infrastructure.”
EuroAsia.News, reporting from New Delhi
UPI processed approximately 24.5 billion transactions during August alone, worth around ₹29.8 trillion — roughly €281 billion. It now accounts for the overwhelming majority of India’s digital-payment transactions by volume and has become one of the most successful real-time payment systems anywhere in the world.
But success created another problem: somebody still has to pay for the infrastructure.
Banks must operate accounts and settlement systems. Payment companies maintain apps, fraud controls, customer support and enormous transaction-processing infrastructure. The National Payments Corporation of India must continually expand and secure the underlying network.
For years, government support and the zero-MDR policy effectively prevented the ecosystem from charging merchants in the conventional way used by card networks.
The new framework begins changing that economics.
Importantly, the Merchant Discount Rate is not a government tax. The fee is distributed among the institutions operating the payment ecosystem, including banks and payment providers. The government’s argument is that allowing limited commercial revenue from larger merchant transactions will make UPI more financially sustainable while protecting consumers and smaller businesses.
The consequences could extend beyond India.
UPI has increasingly become an exportable piece of Indian financial infrastructure. India has promoted links between UPI and payment systems abroad and has presented its digital public infrastructure as a model for emerging economies.
Its original appeal was partly based on an extraordinary proposition: instant bank payments could operate at enormous scale without the merchant fees associated with traditional cards.
The new structure does not eliminate that advantage. Most transactions remain free, while a 0.4% charge on larger merchant payments is still substantially below many conventional card-acceptance costs.
But it introduces a commercial principle into a system that was deliberately designed around zero merchant charges.
The central question will be behavioural.
Large retailers may absorb the new fee because UPI is already deeply integrated into Indian commerce. Others could attempt to pass costs to customers or encourage alternative payment methods. Critics have warned that even relatively small fees could revive cash usage at the margins.
The government is betting on the opposite: UPI is now so deeply embedded that a limited charge on larger commercial transactions will generate revenue without undermining adoption.
If that calculation proves correct, India may have found a middle ground between two competing models of digital payments — public infrastructure that remains free for everyday users, but becomes commercially sustainable when businesses use it for larger transactions.
For a payment network handling tens of billions of transactions every month, that could mark the beginning of UPI’s second economic era.
