New Delhi: India’s widely used digital payment system, the Unified Payments Interface (UPI), may soon undergo a significant change, with the government considering the introduction of a fee on high-value transactions. The proposal is part of an amendment to the Payment and Settlement Systems Act, introduced in Parliament by Finance Minister Nirmala Sitharaman.
If implemented, the move would mark a shift from the current zero-fee structure that has driven UPI’s massive adoption across the country. The proposed change, however, is still under consideration and does not immediately impose any charges.
UPI remains one of the largest real-time payment systems globally, handling massive volumes every month. Recent official data indicates that nearly 23.7 billion transactions, worth approximately ₹29.9 lakh crore, were processed in a single month, underscoring its scale and importance in India’s digital economy.
What is the proposed law?
The amendment seeks to enable banks and payment service providers to levy a merchant discount rate (MDR) on certain electronic payment modes, including UPI. Importantly, the proposal only creates a legal provision for such charges and does not mandate their immediate implementation.
This means that even if the amendment is passed, UPI transactions will continue to remain free for users unless the government decides to notify specific fees at a later stage.
The flexibility allows policymakers to introduce charges in a calibrated manner, depending on market conditions and industry requirements.
What could the UPI fee be?
Discussions around the proposed fee suggest that an MDR of 0.3 per cent to 0.5 per cent could be levied on UPI transactions exceeding ₹2,000.
However, this would apply only to:
- Merchants with an annual turnover of more than ₹1.5 crore
- Transactions above the ₹2,000 threshold
Policymakers are also exploring alternative approaches, such as linking the fee to a merchant’s turnover rather than individual transaction values. There may also be a cap on the maximum fee charged to ensure it remains reasonable.
Why is this fee being considered?
The zero-fee structure of UPI has been instrumental in driving adoption but has also raised concerns among payment service providers. Industry players argue that the absence of transaction fees limits their ability to:
- Invest in technology and innovation
- Strengthen payment infrastructure
- Expand services and improve security
Introducing a limited MDR on high-value transactions is being seen as a way to make the ecosystem more sustainable while ensuring continued growth.
Such a model already exists in card payments, where merchants pay processing fees. Credit card MDR typically ranges from 1.5 per cent to 3 per cent, while debit card charges are comparatively lower.
Who will bear the cost?
Under the current proposal, the MDR would be paid by merchants, not consumers. The charges would go to banks and payment service providers for processing transactions.
The structure is designed to ensure that:
- Small businesses and local shops remain largely unaffected
- Larger businesses bear the cost, given their higher transaction volumes
This approach aims to protect small merchants while ensuring that larger enterprises contribute to sustaining the payment ecosystem.
What does it mean for users?
For everyday users, the proposed changes are unlikely to have an immediate impact. Personal UPI transactions—such as paying for groceries, transport, or utility bills—are expected to remain free.
Even if the fee is introduced, it would apply to a relatively small portion of transactions. Estimates suggest that payments above ₹2,000 account for only about 5 per cent of total transaction volume, but nearly 65 per cent of total transaction value.
This indicates that the majority of UPI users may not be directly affected. Additionally, it remains uncertain whether businesses will pass on these charges to customers.
Conclusion
The proposed introduction of fees on high-value UPI transactions reflects an effort to balance growth with sustainability in India’s digital payments ecosystem. While UPI has revolutionised financial transactions with its zero-cost model, evolving industry dynamics may necessitate limited charges to support infrastructure and innovation.
For now, users can continue to enjoy free UPI services, but the proposed changes signal a potential shift in how digital payments are structured in the future.