Key facts
- India is proposing legislation to potentially introduce fees for merchants on some UPI transactions.
- The move aims to establish a sustainable business model for the rapidly growing UPI network.
- UPI processed 23.66 billion transactions worth approximately $313.4 billion in July.
- The legislation could generate an additional $525 million to $1.05 billion in annual revenue for the payments industry.
- Any new charges may be limited to larger merchants and higher-value transactions.
India is moving to establish a business model for its Unified Payments Interface (UPI) network through new legislation that could allow merchants to be charged for certain transactions. This initiative aims to address the funding challenges of the rapidly expanding digital payments system, which has seen explosive growth since merchant fees were eliminated in 2020.
The proposed legislation lays the groundwork for potentially ending the zero-merchant-discount-rate (MDR) regime, under which businesses have not paid fees to accept UPI payments. The move comes after years of discussion between financial authorities and payment companies regarding how to sustain the network's operations, IT infrastructure, and cybersecurity investments.
Fintech executives have welcomed the potential shift, suggesting that allowing the industry to recover some costs from merchants, while keeping consumer and peer-to-peer payments free, would ensure UPI's long-term sustainability and global expansion. The legislation itself does not mandate fees but opens the door for future specifications.
Market analysts anticipate that introducing charges on higher-value UPI transactions could generate significant new annual revenue for India's payments sector, estimated between ₹50 billion and ₹100 billion ($525 million to $1.05 billion) by fiscal 2028. Reports suggest that any fees might be limited to larger merchants, preserving UPI's consumer-friendly nature while creating a substantial revenue stream for banks and payment providers.
This policy shift is expected to be closely monitored by countries where UPI is already operational, including Singapore, the UAE, and France. Companies like Walmart-owned PhonePe and Alphabet's Google Pay, which together handle nearly 80% of UPI transaction volumes, will be significantly impacted, though the ultimate benefit will depend on how any new fees are distributed across the ecosystem.