UPI charges coming? Payments above Rs 2,000 could attract a 0.4% fee

Consumers using UPI could soon see charges on large UPI payments made to merchants, with regulators leaning towards a fee of around 0.4%, reported news agency Reuters reported.

The National Payments Corporation of India (NPCI) and other payment authorities are consulting banks and payment companies on the proposed fee structure, including how the charges would be divided between banks, payment apps and payment aggregators, as per the report.

This comes after the government clarified that UPI transactions of up to Rs 2,000 are free.

The proposed 0.4% rate is not final and the eventual fee, as well as how it will be shared across the payments' ecosystem is still to be decided.

Regulatory authorities, including NPCI and the Reserve Bank of India, are leaning towards a 0.4% charge on larger UPI payments, as per one of the sources cited in the report.

If implemented at that rate, a Rs 5,000 merchant payment would attract a fee of Rs 20, while a Rs 10,000 payment would mean a Rs 40 charge. On a Rs 50,000 payment, the fee would work out to Rs 200.

These are only indicative calculations based on the proposed 0.4% rate. The final rate has not yet been decided.

The agenda of Tuesday's consultation includes the overall fee to be levied on payments made to merchants and the split between banks, payment apps and aggregators, as per the report.

The proposed fee could create a new revenue stream for several parts of the payments ecosystem.

According to one of the sources cited by Reuters, banks could receive 40% of the fee, while the remaining 60% could be split equally between the payment app and the merchant payment services provider.

That would mean a possible 40:30:30 division between banks, payment apps and merchant payment service providers. However, this is only a proposal under discussion and has not been finalised.CONSUMERS MAY NOT PAY THE FEE DIRECTLY

The potential introduction of UPI charges does not mean that all UPI users will suddenly have to pay a fee.

The proposed monetisation is focused on person-to-merchant (P2M) transactions, Reuters reported. Payments between individuals, or peer-to-peer transactions, are expected to remain free.

This means a UPI transfer between two individuals would continue to be free, while a large payment made by a customer to a merchant could potentially attract a charge.

The government had earlier said that any future merchant discount rate (MDR) on UPI would be nominal and apply only to a limited set of merchant transactions.

The development follows the government's notification on Monday specifying that UPI transactions of up to Rs 2,000 cannot be charged by banks or payment system providers.

The notification also protects payments made using RuPay-powered debit cards from such charges.

The move effectively leaves room for a different charging structure for larger UPI transactions. A detailed operational framework is expected to determine how such charges would work.

The government had kept UPI transactions free since 2020 to encourage digital payments. The latest move could therefore mark a significant change in the way India's largest retail digital payment system is monetised.UPI PROCESSED 24 BILLION PAYMENTS IN AUGUST

The scale of UPI makes the potential change significant for the banking and payments industry.

UPI processed around 24 billion transactions worth $311 billion in August.

With billions of transactions flowing through the system every month, even a small charge on a portion of merchant payments could create substantial revenue for banks and payment companies.

Jefferies estimates that merchant fees on larger UPI transactions could generate Rs 5,000 crore to Rs 10,000 crore annually for the payments industry, as per the report.advertisementPAYTM, PHONEPE, RAZORPAY COULD BENEFITThe introduction of charges could provide an additional source of revenue for payment companies.

The move could benefit Paytm and Pine Labs, while also improving the revenue prospects of IPO-bound PhonePe and Razorpay.

India's payments market is currently dominated by apps including Walmart-backed PhonePe, Google Pay, Paytm and Meta-backed CRED, Reuters reported.

PhonePe and Google Pay together account for a large share of UPI transactions, making the eventual fee structure particularly important for the country's digital payments companies.

The key next step is for NPCI and other stakeholders to finalise the fee structure.

The 0.4% charge being discussed is not final, and neither is the proposed split between banks, payment apps and merchant payment service providers.

For now, the government's rule means UPI payments up to Rs 2,000 remain free. But Tuesday's consultations indicate that larger payments made to merchants could soon enter a monetised segment of the UPI ecosystem.

The development could therefore mark the beginning of a new pricing model for large UPI transactions, nearly a decade after UPI was launched and more than six years after MDR on UPI was made zero.- EndsPublished By: Sonu VivekPublished On: Sep 15, 2026 14:55 IST