India UPI Bill Opens Door To Merchant Fees After July Record

UPI handled a record 23.66 billion transactions worth ₹29.88 trillion, or about $313.4 billion, in July—yet the merchants accepting those payments have paid no fees since 2020.

New legislation in India could change that imbalance by creating a legal path for charges on some transactions, although it does not impose fees or identify which payments would be affected.

Scale and funding strain

The Unified Payments Interface was built by the Indian government and has relied on state incentives since India scrapped merchant discount rates in January 2020 to accelerate adoption.

Its rapid growth has since sharpened a dispute over who should pay for the network’s operation, expansion and security.

Banks and fintech companies have argued that free merchant payments are becoming harder to sustain as transaction volumes and infrastructure costs rise.

The finance ministry, India’s central bank and payment companies have spent years debating how to fund the system while preserving its broad consumer reach.

Pine Labs chief executive Amrish Rau welcomed the legislative move in a post on X. Reaching 90% penetration and taking UPI global, he wrote, will require startups, fintech companies and banks to keep investing in IT, innovation and cyber security.

Allowing the industry to recover part of those costs from merchants, while keeping consumer and peer-to-peer payments free, would put the network on a more sustainable footing, Rau said.

Where charges could apply

The legislation lays the legal groundwork for a possible overhaul of the zero-merchant-discount-rate regime, but leaves the operating rules for later.

Indian officials have considered limiting charges to larger merchants instead of applying them across all UPI transactions, the Economic Times reported last month.

That approach would focus any new fee on commercial payments while preserving the consumer-facing model.

Bernstein noted that transactions above ₹2,000, or about $21, make up only about 4% of payment volumes but nearly 70% of transaction value.

The split gives policymakers a way to target higher-value activity without charging across the network’s much larger pool of smaller payments.

Revenue and market concentration

Jefferies estimated that fees on higher-value UPI transactions could create an additional ₹50 billion to ₹100 billion—about $525 million to $1.05 billion—in annual revenue by fiscal 2028.

The estimate assumes charges of 15 to 30 basis points.

The size of the resulting pool would matter most to the banks, payment apps and other participants that finance and operate the ecosystem.

Walmart-owned PhonePe and Alphabet’s Google Pay together account for nearly 80% of UPI transaction volumes, according to data from the National Payments Corporation of India, UPI’s operator.

International and platform stakes

UPI is also live in Singapore, the United Arab Emirates and France, making India’s decision relevant to countries using or assessing the network.

But the domestic winners are not yet clear.

How much PhonePe, Google Pay or other companies ultimately benefit will depend on which merchants are covered, what fees are approved and how the revenue is divided among banks, apps and the rest of the payments system.