India on August 10 passed a bill that will allow the re-introduction of merchant fees on transactions made through the country's Unified Payments Interface (UPI).
The Ministry of Finance clarified in a press release on August 8 that person-to-person transactions will remain free of charge and the charges will be “threshold based” for a “limited set of merchant transactions”.
India scrapped fees, known as the Merchant Discount Rate, on UPI transactions in January 2020 to accelerate the adoption of the homegrown payments network.
Why nominal charges could help the network
Over the past six years, monthly UPI transactions rose from 1 billion to 24 billion. Embraced by 555 million Indians, the system processed payments worth 29.87 trillion rupees ($313.16 billion) for the month of July. Now, instead of using cash or swiping a Visa or Mastercard card to buy vegetables, a Starbucks coffee or an airline ticket, Indians use UPI applications on their mobile phones to make instant bank-to-bank transfers to friends and merchants. Cash is no longer king.
The government has not confirmed the new fees, but so long as they only apply to higher-value transactions and remain below the 0.9% and 1.5% charged on debit cards and credit cards, UPI will remain accessible and retain its popularity. A Reuters report, citing unnamed sources, says fees could be 0.3% to 0.5% on transactions above 2,000 rupees - roughly $21 - for merchants with annual turnover exceeding 15 million rupees. If so, that would apply to just 4% of total UPI volume in the year to the end of March 2026.
Payments firms need revenue and India wants resilience
Without generating profits on everyday transactions, payments companies have less to invest back into maintaining digital infrastructure, fraud prevention and customer acquisition. Instead, they rely on other business lines including cross-selling loans, insurance and mutual funds to users and merchants. Growing this business has been a slog: Paytm, India's original digital payments poster child owned by One97 Communications, only turned a full-year profit in March 2026. PhonePe is preparing for a public listing but is still losing money. And the government's subsidy to support payments is also insufficient to incentivise companies to bring on board the next 500 million users in far-flung cities and towns.
What's more, the most popular UPI applications in India are funded through the deep pockets of U.S. tech giants: official data show Walmart and Alphabet combined supported 78% and 82% of the total volume and value of transactions last month. That leaves the payments system vulnerable to any change in foreign companies' commitment to the South Asian country. With digital payments habits firmly embedded in the public, it's the right time to introduce nominal fees.
UPI fees can support India’s digital payments system
India’s digital payments system doesn’t have to be free to be a public good. In 2020, four years after the country launched its home-grown Unified Payments Interface, or UPI, the government scrapped merchant fees to speed up adoption. This policy has been a roaring success. The decision taken this month to re-introduce charges is the best way to ensure the pioneering system, propped up by user-friendly interfaces of Alphabet's Google Pay, Walmart's PhonePe, Paytm and others, thrives for the long term.
