India’s UPI ecosystem is entering a new commercial phase as merchant fees are set to be introduced on eligible high-value transactions from October 15.
Under the new framework, a 0.4% MDR will apply to eligible person-to-merchant UPI transactions above ₹2,000. The framework does not apply to ordinary person-to-person transfers, which will remain free.
Editorial Insight
Key Highlights
Important points readers should notice.
Issue/Event: UPI is moving away from a completely zero-fee merchant payment model.
Location: India.
Authority/Organisation: National Payments Corporation of India (NPCI) and the wider UPI ecosystem.
Action Taken: A 0.4% MDR has been introduced for eligible merchant transactions above ₹2,000 from October 15, with applicable exemptions and transaction-specific fee structures.
Impact: Banks and payment companies gain a new revenue source, while the change could influence competition, merchant behaviour and the future economics of digital payments.
The change ends more than six years of the zero-MDR model that helped UPI become one of India’s most widely used digital payment systems.
UPI processed around 24.5 billion transactions worth ₹29.82 trillion in August 2026, according to official data cited in recent reporting. More than 550 million users were using the network, highlighting the scale of the payment infrastructure.
The new fee structure is expected to create additional revenue for the banks, payment apps and other entities involved in processing UPI transactions. The revenue will be distributed across participants in the payment ecosystem.
Editorial Analysis
Why This Matters
UPI has become part of everyday commerce in India, from small shops to large purchases. Any change to its pricing structure therefore has implications beyond the financial sector. The new MDR could help payment companies recover some of the cost of maintaining large-scale payment infrastructure. However, it also introduces a new cost into certain merchant transactions and could affect how businesses evaluate UPI against other payment methods. The impact on consumers is also an important point: the government has stated that UPI app providers cannot impose platform fees or hidden charges on users, while the MDR itself is structured as a merchant-side charge.
For certain categories such as railway, telecom, insurance and fuel payments, a separate flat fee structure applies. For eligible large-value merchant transactions, the MDR is capped at ₹300 for transactions above ₹75,000.
The changes are particularly significant for major UPI applications. PhonePe and Google Pay together accounted for about 80% of UPI transaction value in August, meaning the new revenue opportunity could be substantial for the two leading platforms.
Industry estimates cited in recent reporting suggest the new fee framework could generate up to $1.1 billion annually for payment apps by March 2028, although the eventual revenue will depend on transaction volumes, market shares and implementation.
