India delays UPI merchant fee after retailers push back

The National Payments Corporation of India (NPCI), which operates the country’s Unified Payments Interface (UPI), said Tuesday it is postponing the October 15 rollout of a 0.4% fee on eligible merchant transactions exceeding ₹2,000 (about $21). The fee, announced last month, would have marked a significant departure from India’s years-long policy of keeping UPI payments free for merchants; NPCI said the delay follows the festive shopping season and did not specify a new date, with the rollout now expected after Diwali, one of India’s biggest festivals and shopping periods.

The proposed fee drew opposition from retailers and petrol pump operators, some of whom warned they could stop accepting UPI payments if the charge took effect. UPI, which powers payments through apps such as Google Pay, PhonePe, and Paytm, has become the backbone of India’s digital payments system, with its growth supported by the government keeping it free for merchants and subsidizing banks and payment providers to help cover costs. In September alone, UPI processed 24.07 billion transactions worth ₹29.37 trillion (about $305 billion), per NPCI.

UPI was not always free for merchants: banks and payment providers previously charged them for transactions, but the government scrapped those fees in January 2020 to encourage a shift away from cash, long the dominant payment method in the country. UPI has continued to grow in both transaction volume and value since, and in recent years the government has sought to take it overseas — NPCI set up an international arm in April 2020, and the network is now available in several countries including Singapore, the United Arab Emirates, and France.

NPCI had tried to limit the impact of the new fee by exempting payments of ₹2,000 or less, as well as small merchants receiving less than ₹100,000 (about $1,033) a month through UPI, and by capping the fee at ₹300 (around $3) for larger transactions. The organization said the money collected would be shared among participants in the UPI ecosystem to help pay for infrastructure, cybersecurity, and fraud prevention. Citing industry estimates, NPCI said last month that the annual cost of running UPI is about ₹200 billion (around $2.1 billion), including spending on server capacity, fraud prevention, and technical support — a cost banks and payment companies have argued for years they need a way to recoup as transaction volumes grow.

Why it matters

The delay shows the political cost of touching a free-payments policy that has become central to how India transacts: even a capped, narrowly targeted merchant fee ran into pushback strong enough to postpone it during the country’s biggest shopping season.