India
India to Charge Businesses 0.4% Fee on Large UPI Payments
By Today News Hours Editorial Desk
The National Payments Corporation of India announced on Tuesday that a 0.4% fee will apply from 15 October to UPI (Unified Payments Interface) payments above 2,000 rupees (£15; $21) made to businesses by customers. Businesses will pay the fee and cannot pass it on to consumers. The government says the charge will help keep UPI viable long‑term, but experts warn it could raise costs for businesses and discourage use of the system.
UPI, launched in 2016, allows instant money transfers through mobile apps and is used by everyone from small vendors to large enterprises. Until now, the government, banks and payment companies have largely covered the cost of running and expanding the system. The new fee, known as the Merchant Discount Rate (MDR), is intended to help cover some of those costs.
The government clarified that the MDR is not a tax or a charge collected by the government or NPCI. The money will be distributed among payment system providers, including banks, to support operations and continued expansion.
The fee will not apply to all UPI payments. Person‑to‑person transfers remain free, regardless of amount. Payments up to 2,000 rupees made to merchants also remain free. Merchant payments through QR codes in rural and semi‑urban areas will not attract MDR either. The government said that approximately 96% of person‑to‑merchant transactions will remain unaffected, either because they are below the threshold or because they are covered by the zero‑MDR framework for small merchants.
Certain merchant payments above 2,000 rupees, including those for railways, telecom services, insurance, fuel and agricultural inputs, will attract a flat charge of five rupees. For other transactions above 2,000 rupees that are subject to MDR, the fee will be 0.4% and capped at 300 rupees per transaction. The cap applies to transactions of 75,000 rupees or more. The regulator said the money will support investment in payment infrastructure, resilience, innovation and cyber security.
The decision has sparked debate. Some social media users argue that charging merchants could weaken one of UPI’s biggest attractions – that it has been free to use. Others warn that some merchants could switch to cash for larger transactions rather than absorb a fee they did not previously have to pay. Former chief economic adviser Krishnamurthy Subramanian said the economics of a system such as UPI cannot be "evaluated using private cost versus private benefit". Indian entrepreneur Ashneer Grover said a shopkeeper could refuse a UPI payment of 2,000 rupees and ask for cash, causing customers to revert to cash.
Opponents of the fee argue that it is needed to fund and expand the payments system. "When government funds the subsidies paid for UPI, that amount comes from taxpayers’ pocket. Moving to a market‑linked pricing mechanism removes this tax burden and directly links the cost to large businesses which benefit from UPI," said Bipin Preet Singh, CEO of fintech firm MobiKwik.
Since its launch a decade ago, UPI has become a central part of India’s digital payments economy. In August, UPI processed a record 24.51 billion transactions worth 29.82 trillion rupees (roughly $311 bn), according to NPCI data. The question now is whether the new charges will change how businesses use UPI, particularly for larger payments.