India opens door to UPI merchant fees on digital payments

India's parliament opened the door to charging merchant fees on its digital payments system on Monday, when the upper house passed legislation to end the zero-fee UPI model. The government says the move could fund infrastructure upgrades and stronger cybersecurity for the world's largest real-time payment network, used by 555 million people.

Does the new UPI law charge consumers fees?

No. The bill itself does not impose any fees; it only creates a legal framework allowing banks and payment processors to charge merchants for UPI transactions. Finance Minister Nirmala Sitharaman told parliament the provision does not impose any tax or transaction charge on UPI users, and would apply only to large merchants above a set threshold.

How big is India's UPI payment system?

The government-backed Unified Payments Interface is the backbone of digital payments in the world's most populous country. Transaction volumes have grown fivefold in five years since UPI's 2016 launch, reaching 241 billion payments worth about $3.3 trillion in the last fiscal year, according to finance ministry figures. The IMF calls it the largest real-time payment system in the world by volume, processing more transactions than Visa or Mastercard globally.

Why is India considering merchant fees on UPI?

Sitharaman said the change would support banks and fintech firms investing in infrastructure, innovation and security. Most transactions remain small, with the vast majority of transfers below 2,000 rupees ($21), according to industry figures. India's government has heavily promoted UPI since Prime Minister Narendra Modi's 2016 currency purge, including $1 billion in subsidies between 2021 and 2025. The country's payments industry lobby wants smaller stores to stay exempt, arguing fees should target larger businesses in sectors like aviation, e-commerce or food delivery.

Where else does India's UPI system operate?

India has exported the UPI model to at least eight countries, including neighboring Bhutan, Nepal and Sri Lanka, as well as the UAE, Singapore, France and Qatar. It has also signed cooperation agreements with more than 20 other countries. The system is operated by the National Payments Corporation of India, a not-for-profit company under the Reserve Bank of India and the banking industry.