India's UPI ecosystem processed 145 billion transactions in the first half of FY27, a 27% increase year-on-year. As transaction volumes remain strong, the network is shifting to a new fee model for large payments starting October 15, 2026. This transition aims to improve the financial viability of payment platforms, though it introduces a 0.4% charge on merchant transactions exceeding ₹2,000.
The Unified Payments Interface (UPI) in India has maintained its strong growth trajectory, recording 145 billion transactions in the first half of the 2027 fiscal year. This marks a 27% growth compared to the 114 billion transactions processed during the same period last year. While the momentum remains high, the ecosystem is now preparing for a fundamental shift in its revenue model. Starting October 15, 2026, a 0.4% merchant discount rate (MDR) will be implemented on person-to-merchant (P2M) UPI transactions that exceed ₹2,000.
Understanding the New Fee Structure
The move is designed to ensure the long-term sustainability of payment providers, who have operated under a zero-fee model for years. To protect smaller participants and ensure the system remains accessible, the National Payments Corporation of India (NPCI) has introduced specific exemptions. Peer-to-peer (P2P) transfers will remain completely free. Additionally, small merchants who process less than ₹1 lakh per month through QR codes are exempt from the new levies. For larger transactions, the fee is capped at ₹300 for payments of ₹75,000 or more.
The collected fees will be distributed across the payment ecosystem to share the costs of processing. Under the new guidelines, 40% of the MDR will go to the customer's bank, 30% to the payment gateway, 20% to the UPI application used for the payment, and 10% to the sponsoring bank. This structured split is intended to support the infrastructure costs faced by all stakeholders in the digital payment chain.
Market and Regulatory Context
The implementation of these fees follows intense debate regarding the viability of free digital payments. Despite concerns from some merchant groups, the Supreme Court has refused to stay the implementation of the new framework, allowing the transition to proceed as planned. While the primary goal is to shore up the financial health of the payment network, industry observers are tracking the potential impact on consumer behavior. There is a risk that some merchants might attempt to pass these costs on to customers, even though regulations generally advise against such practices.
Activity in September 2026 saw a minor cooling, with volumes dipping 1.7% to 24.07 billion transactions compared to August. However, this is largely viewed by analysts as a calendar-related fluctuation rather than a decline in demand, as daily average usage actually improved. As the new fee structure takes effect in mid-October, the key monitorable for the market will be whether transaction growth continues at current levels or if the new costs lead to a shift in payment habits for high-value purchases.