India's UPI to Charge Merchants 0.4% on Payments Above $20 Next Month

NPCI, the umbrella organization that manages India's retail payments and settlement systems, said the merchant fee is far lower than the 0.9% charged on debit card transactions and the 1.5% to 2.5% charged on credit cards. In 2020, the Indian government cut the merchant discount rate for UPI to zero to promote digital transactions. After that move, UPI transaction value increased 10-fold to 213 trillion rupees over roughly six years ending in January 2025.

The Indian government has defended the new fee, saying it is confident the step will not hurt India's march toward a cashless economy. Critics disagree. Some have questioned the need to charge for a service the government previously described as a digital public good, while Prime Minister Narendra Modi's political rivals allege the government is buckling under pressure from the United States.

Fintech companies have welcomed the fee. Girish Krishnan, director of payment experience at Amazon Pay, told CNBC that "UPI's success was built on zero-cost adoption by consumers, small shopkeepers, and micro-enterprises, and the notified MDR framework preserves that foundation." Kunal Shah, head of Meta's WhatsApp Pay, called it a "great move forward." Paytm said the measure will generate additional revenue from merchant business.

Not all reactions were positive. Ashneer Grover, former CEO of Indian fintech company BharatPe, criticized the move, saying "any levy on UPI is just tax collection." The opposition Indian National Congress accused the government of favoring U.S. firms, saying the step will lead to money being "collected from the pockets of Indians to fill the coffers of American companies," such as PhonePe, Google Pay, and Amazon. Some commentators have said the move will encourage people to return to transacting in cash.

UPI's scale has made the change closely watched. The system on average processes more than 1.1 million transactions every two minutes, according to NPCI data for September cited by CNBC. In January, the Indian government said UPI had surpassed Visa in daily transaction volumes, accounting for 85% of digital payments in India and 50% globally. The U.S. Trade Representative's office, in a report earlier this year, flagged concerns that policies governing India's electronic payments services "appear to favor Indian domestic suppliers over foreign suppliers, creating a non-level playing field." The report also said American electronic payment services suppliers could not participate in the Indian ecosystem, including credit transactions on UPI and the domestic card payment network RuPay.

Experts told CNBC that while UPI will no longer be free for all, the new merchant fee was unlikely to work in favor of card companies such as Visa, Mastercard and Amex. The fee will help strengthen unit economics for platforms such as Walmart-owned PhonePe and Google Pay. The two payment apps together account for nearly 85% of UPI transactions by value and 81% by volume, according to a report by Indian brokerage Ambit Capital. Neil Shah, vice president of research at Counterpoint Research, told CNBC that "a 0.4% rate severely undercuts credit cards at 1.5% to 2% and debit cards," adding that it gives merchants "every economic incentive to favor UPI rails."

Reuters reported that UPI transactions above 2,000 rupees account for just 4% of merchant payment volumes but about 67% of transaction value, creating a huge pool of revenue.