NPCI says new UPI merchant fees may not hurt volumes

The policy marks the first meaningful move away from UPI’s zero-fee model for some merchant flows, making it economically important for India’s payments ecosystem and politically sensitive for merchants who had treated UPI as a free alternative to cards and cash. Asbe said any revenue collected would be recycled into the system, including soundboxes, voice payments, feature-phone payments and AI-based tools.

The rollout is designed to avoid a broad consumer backlash. Small merchants under the zero-MDR framework remain exempt, while certain thin-margin or essential sectors such as railways, telecoms, insurance, fuel and agricultural inputs will face a flat ₹5 fee on eligible transactions above ₹2,000. Capital market transactions will carry a 0.02% MDR, capped at ₹300.

Asbe said most of the MDR would be paid by existing merchants already accustomed to card fees, and said the industry must ensure charges are not passed on to consumers. That point matters for investors because it suggests the government is trying to preserve UPI’s usage growth while creating a revenue stream that could support infrastructure spending rather than dampen adoption.

The comments come as merchant resistance to the new fees has been building, with some retailers staging protests over the change. Even so, NPCI’s stance signals that regulators are betting the impact on transaction growth will be limited, especially given UPI’s scale and the government’s determination to keep low-value payments free.

For payment processors, lenders and merchant-acquiring banks, the key question now is whether the new pricing framework changes merchant behavior at the margin or simply shifts costs within the system. NPCI said it will review the policy based on data, leaving the door open to tweaks if transaction patterns weaken or merchants try to push the charge onto customers.

The next catalyst is October 15, when the MDR framework goes live and markets can begin to judge whether the fee changes dent UPI usage, trigger more merchant pushback or prove small enough to leave the broader payments growth story intact.