UPI stays free for customers as merchant fees start in October

Background

When someone pays a shop through UPI, the payment app is only the visible part of the transaction. Behind it, participating banks and the payment network pass instructions that move money between accounts. UPI, developed by the National Payments Corporation of India, allows this to happen in real time. A customer can use a bank account directly rather than first loading money into a separate wallet. Keeping that service available involves running computer systems, preventing fraud and resolving failed transactions. Those costs do not disappear when a payment is free for the customer. They must be met elsewhere in the payment system. One way payment providers earn revenue is through a merchant discount rate, or MDR. Despite its name, MDR is a fee for processing a business’s payment, not a shopping discount offered to its customer. India has kept UPI free for users and merchants since January 2020, according to the Finance Ministry. The government has supported its growth through incentives while banks and other participants maintain the service. In August 2026, the ministry argued that continued investment in security and infrastructure required a more sustainable funding arrangement. It said an NPCI-led steering committee would decide whether to introduce a limited merchant fee. That was a policy explanation, not a fee schedule. The Finance Ministry then protected UPI payments up to ₹2,000 through its notification of 14 September. That instrument identified a charge-free category but did not fix rates for payments outside it. NPCI supplied the next step on 15 September: a merchant-fee schedule starting in October, with exemptions and a ceiling. The sequence explains why the earlier notification was not itself a fee announcement. It also explains why the new fee should not be described as a charge on everyone transferring more than ₹2,000.

How it developed

1. 14 September 2026
   How it started

   The notification defines which payments cannot attract bank charges

   The Finance Ministry specified two protected electronic-payment categories under the Payment and Settlement Systems Act, 2007. They are RuPay debit-card payments and UPI transactions up to ₹2,000. Banks and payment-system providers cannot impose charges, directly or indirectly, on people making or receiving these payments. The ₹2,000 qualification appears against UPI; the notification does not attach that amount to its separate RuPay debit-card category. For larger UPI payments, the document does not prescribe a rate, name the merchants who would pay, or announce a collection date. These omissions matter because being outside a protected category is not the same as already facing a specified fee. The Finance Ministry’s earlier clarification said any MDR, if introduced, would be limited to merchant transactions above a threshold. It also said consumer payments and person-to-person transfers would remain free. The new notification should therefore not be read as an announcement that every UPI transfer above ₹2,000 now costs money.

   Ministry of Finance / Gazette of IndiaMinistry of Finance / PIBBusiness Standard
2. 15 September 2026
   New fact

   NPCI fixes the merchant fee, exemptions and October start date

   NPCI’s schedule sets the standard MDR at 0.4% for eligible merchant payments above ₹2,000 from 15 October 2026. For example, a ₹3,000 purchase would attract a ₹12 processing fee paid by the merchant, not the buyer. The charge stops at ₹300 for payments of ₹75,000 and above. Payments up to ₹2,000 remain free of MDR. Customers continue to pay the purchase price without an added UPI fee. The merchant’s category changes the answer for larger payments. P2PM small vendors remain exempt, and receiving one payment above ₹2,000 does not remove that protection. NPCI says vendors exceeding ₹1 lakh in monthly UPI receipts for three consecutive months move into the P2M merchant category. Existing QR stands and soundboxes do not need replacement or fresh registration because of this fee schedule. Some sectors receive different treatment. Railways, telecom, insurance, fuel and specified utilities have a flat ₹5 MDR on payments above ₹2,000. Capital-market payments have a 0.02% rate, capped at ₹300. Recurring AutoPay mandates have no prescribed MDR, including recurring investments. These are payment-processing rules, not a new charge on the customer or a replacement for separate credit-linked UPI rules.

   NPCIBusiness Standard

Key terms