India Ends Free Ride for Large UPI Transactions
AI-generated image · US National Wire
The National Payments Corporation of India is introducing merchant fees to make the ubiquitous digital network self-sustaining.
India is shifting the financial burden of its digital payments network from the state to merchants. Starting October 15, the National Payments Corporation of India (NPCI) will impose a 0.4% merchant fee on certain UPI transactions exceeding ₹2,000 (approximately $21), as TechCrunch first reported.
The move ends a zero-fee model implemented in January 2020 to drive adoption, which required the Indian government to subsidize payment firms and banks. NPCI estimates the annual cost of operating the network—including technical support, fraud prevention, and server capacity—at roughly ₹200 billion ($2.1 billion). The NPCI stated that the new fees will fund cybersecurity, infrastructure, and customer service, and will be distributed among ecosystem participants.
Specific fee structures include: * **Standard:** 0.4% fee on payments over ₹2,000, capped at ₹300 (about $3) for transactions of ₹75,000 or more. * **Sector-specific:** A flat ₹5 fee for transactions over ₹2,000 in telecom, insurance, fuel, and railways. * **Capital markets:** Transactions in this sector will incur a 0.02% fee, with a cap of ₹300.
Exemptions remain for payments of ₹2,000 or less and for small merchants receiving up to ₹100,000 per month. NPCI noted that payments under ₹2,000 represent over 95% of merchant transaction volume.
While consumers will not be charged, the NPCI has prohibited merchants from passing the fee to customers. The shift may benefit fintech firms that invested heavily in infrastructure, including Pine Labs, Paytm, Razorpay, and PhonePe. However, former chief economic adviser Krishnamurthy Subramanian questioned the opportunity cost of the charges, arguing that UPI serves as digital public infrastructure that reduces cash reliance and formalizes the economy.