Following widespread opposition from merchants across the country, India has postponed its plan to introduce merchant fees on its digital payment network. The plan was originally intended to increase revenues for companies involved in payment services long dominated by Google and PhonePe.
The National Payments Corporation of India (NPCI), which operates the Unified Payments Interface (UPI), said on Tuesday that it is delaying the implementation of a 0.4% fee on merchant transactions exceeding 2,000 rupees (approximately $21), originally scheduled for October 15, due to the upcoming holiday shopping season. The fee, announced last month, would mark a significant shift from India’s longstanding policy of offering UPI transactions to merchants free of charge.
NPCI stated that the new launch date will be scheduled after Diwali, one of India’s most important festivals and peak shopping seasons, though the agency did not specify the new date. NPCI data shows that in September alone, UPI processed 24.07 billion transactions worth ₹29.37 trillion (approximately $305 billion).
The proposed fee has been opposed by retailers and gas station operators, some of whom have warned that they may stop accepting UPI payments if the fee takes effect.
Over the past few years, UPI has become the backbone of India’s digital payment system, enabling payments through apps like Google Pay, PhonePe, and Paytm. The Indian government has maintained UPI free for merchants and provided subsidies to banks and payment providers to help them offset part of the costs, thereby supporting its growth.
However, UPI was not always free for merchants. Previously, banks and payment providers charged merchants transaction fees, but the Indian government eliminated these fees in January 2020 to encourage more people to shift from cash to digital payments—cash had long been the primary method of purchasing goods and services in India. Since then, the volume and value of UPI transactions have continued to grow.
In recent years, the Indian government has also sought to expand UPI internationally. In April 2020, NPCI established an international division, and the network is now available in multiple countries, including Singapore, the UAE, and France.
NPCI attempted to mitigate the impact of new merchant fees by exempting payments of 2,000 rupees or less, as well as small merchants receiving less than 100,000 rupees (approximately $1,033) per month via UPI. For larger transactions, the institution also set a fee cap of 300 rupees (approximately $3). NPCI stated that the collected funds would be distributed to UPI ecosystem participants to cover infrastructure, cybersecurity, and anti-fraud costs.
Last month, NPCI cited industry estimates stating that the annual cost of operating UPI is approximately ₹200 billion (about $2.1 billion), including expenses for server capacity, fraud prevention, and technical support. For years, banks and payment companies have stated that as transaction volumes grow, they need a way to recoup these costs.