India ends free UPI processing for merchants on payments above ₹2,000

India is putting a price on large transactions across the Unified Payments Interface (UPI), ending years of free processing on the world's largest digital payments network. According to TechCrunch, the National Payments Corporation of India (NPCI), which operates UPI, announced on Tuesday that a 0.4% merchant fee will apply to certain payments above ₹2,000 (about $21) from October 15. Consumers will continue to use the service for free.

How the fee structure works

The 0.4% charge is capped at ₹300 (about $3) for transactions of ₹75,000 (roughly $783) or more, while payments of ₹2,000 or below remain free for merchants. Small merchants receiving up to ₹100,000 (about $1,041) per month through UPI are also exempt from the charges.

Certain sectors have their own rates: railways, telecom, insurance and fuel will pay a flat ₹5 fee on UPI transactions above ₹2,000, and capital-market transactions will attract a 0.02% fee, capped at ₹300.

For comparison, TechCrunch notes that credit card merchant fees typically run between 1.5% and 2.5% per transaction, while debit card fees are capped at 0.9%, according to an FAQ published by NPCI. The payments operator has also barred merchants from passing the new fee on to customers, arguing that the 0.4% charge is low enough for businesses to absorb, so consumers will keep paying the listed price regardless of how they pay.

The end of a six-year free model

UPI has been free for merchants since January 2020, when India scrapped merchant fees to accelerate adoption and the government subsequently subsidised banks and payment firms for processing some transactions. The payments industry had long expected this shift, arguing that the zero-fee model made it hard to cover the growing cost of running the network.

The legal groundwork came in August, when New Delhi amended India's payments law to allow merchant fees on some UPI transactions. A notification issued on Monday then specified that banks cannot levy charges on UPI payments of up to ₹2,000, clearing the way for fees on larger transactions.

The scale explains the pressure. UPI processed 24.51 billion transactions worth ₹29.9 trillion (about $312 billion) in August alone, according to NPCI data cited by TechCrunch. Industry estimates put the annual cost of running the network, including server capacity, fraud prevention and technical support, at about ₹200 billion ($2.1 billion). NPCI did not respond to questions from TechCrunch about how it arrived at that estimate, how much revenue the new fees will generate, or how that revenue will be distributed across the ecosystem.

Who gains and who pays

NPCI said the merchant fees will be distributed among participants in the UPI ecosystem and used to fund investments in infrastructure, cybersecurity, fraud prevention and customer service. Part of the proceeds will go toward a fund aimed at expanding digital-payment infrastructure and merchant adoption in smaller cities and rural areas, with details to be worked out with India's central bank over the next three months.

The change could also hand a revenue boost to payment companies that have spent heavily building UPI processing infrastructure. TechCrunch names Paytm, Pine Labs, IPO-bound PhonePe and Razorpay as firms that could benefit as the merchant fee flows through the payments ecosystem.

Not everyone is convinced. Krishnamurthy Subramanian, a former chief economic adviser to the Indian government, argued that UPI should be treated as digital public infrastructure whose benefits extend well beyond individual transactions, including reduced reliance on cash and wider access to digital payments, and questioned the opportunity cost of charging for it.

NPCI has limited the risk to adoption by keeping small transactions outside the fee regime: payments of up to ₹2,000 account for more than 95% of UPI merchant transactions by volume.

Why it matters

UPI is the backbone of India's digital economy, and this is the most significant policy change to the network since it went free for merchants in 2020. The move signals that even massively successful public payment infrastructure eventually faces sustainability questions at scale. The real test arrives after October 15, when it becomes clear whether merchants absorb the cost or steer customers toward other payment methods, particularly for larger purchases and in thin-margin businesses. The outcome will be watched closely by other countries studying India's public payment rails as a model.