India has introduced legislation that may allow merchants to pay fees on specific UPI transactions to support the network's long-term growth. The move aims to cover infrastructure costs while keeping payments free for individual users. Investors are tracking how this potential shift could impact revenue for payment providers and banks.
The Indian government is moving to potentially change the business model of the Unified Payments Interface (UPI) by introducing legislation that allows for merchant charges on select transactions. This development marks a shift from the zero-merchant-discount-rate (MDR) policy that has been in place since January 2020. Under the current system, businesses do not pay fees to accept UPI payments, a model that helped the network achieve massive adoption across the country.
Infrastructure Costs and Industry Funding
Recent data from the National Payments Corporation of India (NPCI) shows that the UPI network is operating at a massive scale, recording 23.66 billion transactions worth ₹29.88 trillion in July 2026 alone. As the transaction volume grows, banks and fintech companies have raised concerns that the current free-payment model is becoming difficult to maintain. Developing and managing the infrastructure required for such high volumes involves significant investments in information technology, digital innovation, and cybersecurity.
Industry leaders and financial institutions have suggested that introducing fees for merchants could help create a more sustainable funding model. The objective is to allow payment firms and banks to recover some of the costs associated with scaling the network, while ensuring that peer-to-peer and consumer-to-merchant payments for individuals remain free.
Potential Revenue Impact and Targeted Application
Although the proposed legislation does not define the exact fee structure, financial analysts are examining the potential revenue implications. According to projections from Jefferies, if a fee of 15 to 30 basis points were applied to higher-value UPI transactions, it could generate between ₹50 billion and ₹100 billion in annual revenue by fiscal year 2028.
Market experts from firms like Bernstein have suggested that any new fee structure might be targeted toward larger businesses rather than being applied universally. This approach is intended to protect the consumer-friendly nature of UPI while providing a new revenue stream for the financial ecosystem. Data indicates that transactions exceeding ₹2,000, while accounting for only about 4% of total transaction volume, represent approximately 70% of the overall transaction value.
Ecosystem and Competitive Landscape
The impact of this regulatory change will be significant for major players in the digital payments space, such as PhonePe and Google Pay, which together manage a large majority of UPI transactions. The final financial benefit for these companies will depend on how the government chooses to distribute the collected fees among banks, payment service providers, and the infrastructure entities involved. As India explores exporting the UPI model to countries like Singapore, the UAE, and France, the sustainability of the domestic fee structure becomes an important indicator for the global scalability of the network. Investors will continue to monitor future notifications from the Reserve Bank of India and the government to understand which specific transaction categories will be subject to charges and how the implementation timeline will be structured.