India to Charge 0.4% Merchant Fee on High-Value UPI Payments
The National Payments Corporation of India ends a six-year zero-fee era to make the digital payments network financially self-sustaining.
India's Unified Payments Interface (UPI) will introduce a 0.4% merchant fee on specific transactions starting October 15, 2026. The move signals a strategic shift by the National Payments Corporation of India (NPCI) to transition the network from a subsidized public utility to a self-sustaining financial model.
Under the new rules, the 0.4% fee applies only to UPI payments exceeding ₹2,000. To protect smaller players, merchants receiving up to ₹100,000 per month through the platform remain exempt from these charges. Additionally, all payments of ₹2,000 or less will stay free for both consumers and merchants. For high-value transactions, the NPCI has implemented a cap, limiting the fee to ₹300 for any single transaction of ₹75,000 or more.
The Cost of Scale
This policy change follows a period of explosive growth that has strained the network's original funding model. In August 2026 alone, UPI processed 24.51 billion transactions totaling ₹29.9 trillion. To fuel this rapid adoption, the Indian government had previously scrapped merchant fees in January 2020 and provided direct subsidies to participating banks.
However, the scale of the network has made the zero-fee approach unsustainable. The annual cost of operating the UPI network is estimated at approximately ₹200 billion ($2.1 billion). To address this, the government amended the Payment and Settlement Systems Act of 2007, legally enabling the introduction of a Merchant Discount Rate (MDR) for select transactions.
Industry Implications
The transition is expected to create a critical revenue stream for fintech providers such as PhonePe, Razorpay, and Paytm. These funds are intended to support essential upgrades in cybersecurity and the expansion of digital infrastructure into rural areas. The central challenge regarding this shift is the balance between the opportunity cost of charging for transactions and the resulting social benefits.
For the broader market, the impact will depend on how larger businesses respond to the new overhead. While consumers face no direct charges, there is a risk that larger merchants may either absorb the 0.4% cost or attempt to steer customers toward alternative payment methods for high-value purchases to avoid the fee.
What's Next
Market analysts will now watch whether the introduction of the MDR affects the volume of high-value transactions or if the exemption for small merchants is sufficient to prevent a wider industry backlash. While the legislative framework is now in place, the long-term success of the model depends on maintaining the balance between financial viability and the ubiquitous accessibility that defined UPI's initial growth.