India's UPI, which has been free for merchants since January 2020, will impose a 0.4% merchant fee on certain payments above ₹2,000, or $21, from October 15

Merchants accepting UPI payments above ₹2,000 will now incur a fee, altering the cost of doing business.

India's Unified Payments Interface (UPI), a widely used digital payment network, will introduce a 0.4% merchant fee for transactions exceeding ₹2,000 (approximately $21), effective October 15. This change, announced by the National Payments Corporation of India (NPCI), marks the end of a zero-fee policy for merchants that began in January 2020. Consumers will continue to use UPI for free. The fee is capped at ₹300 for transactions of ₹75,000 or more. Small merchants receiving up to ₹100,000 monthly will be exempt. Certain sectors like railways, telecom, and fuel will pay a flat ₹5 fee on transactions above ₹2,000, while capital-market transactions will have a 0.02% fee. This move follows an amendment to India's payments law and addresses concerns about the sustainability of operating the large-scale network, estimated to cost around ₹200 billion annually.

The introduction of merchant fees on UPI transactions above ₹2,000 signifies a pivotal shift towards a sustainable operational model for India's digital payment infrastructure. This change is expected to generate revenue for network upkeep, cybersecurity, and service enhancements, potentially benefiting fintech companies that have invested in UPI processing. By exempting smaller transactions and merchants below a certain threshold, the NPCI aims to preserve UPI's widespread adoption while seeking to balance its considerable operating costs.

This policy adjustment could influence merchant pricing strategies and consumer payment choices, particularly for larger purchases, despite NPCI's directive for merchants to absorb the fee. The long-term impact will depend on merchants' ability to absorb these costs and whether it leads to shifts in payment preferences, though the 0.4% fee is positioned as significantly lower than traditional credit and debit card fees.