NPCI Opens Talks With Banks and Payment Firms Over Fees on Large UPI Merchant Payments

India’s UPI ecosystem could be heading for a change in the way larger merchant payments are priced, with the National Payments Corporation of India holding discussions with banks and payment companies over possible transaction charges. 

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The consultations come after a change in payments legislation on Monday allowed charges to be introduced on transactions above ₹2,000. UPI payments have so far been free. 

No final fee has been decided. Regulatory authorities, including NPCI and the Reserve Bank of India, are considering a charge of around 0.4%, according to the report. How the fee would be divided among the different participants in a transaction is also still under discussion. 

Talks cover both the fee and how it could be shared 

The discussions are centred on merchant payments rather than transfers between individuals. 

One structure under consideration would give banks 40% of the fee collected on a transaction. The remaining 60% could be divided equally between the payment app and the merchant payment services provider. 

These numbers remain part of the discussions and have not been finalised. 

Person-to-merchant payments are expected to be the category covered by the proposed fee structure. Peer-to-peer transfers, where one individual sends money directly to another, are expected to remain free. 

NPCI and the RBI had not responded to requests for comment at the time of the report. 

UPI handled 24 billion payments in August 

The discussion comes at a time when UPI is handling an enormous volume of everyday payments in India. 

In August alone, the platform processed 24 billion transactions with a combined value of $311 billion. 

Until now, those transactions have operated without UPI transaction charges. The latest legislative change creates room for a different structure for payments above ₹2,000, although the operating details are yet to be settled. 

A fee on merchant transactions would create a new revenue stream for banks and payment companies involved in processing UPI payments. 

Payment companies could gain a new source of revenue 

A move towards charging larger merchant transactions would have implications across India’s digital payments industry. 

Paytm and Pine Labs are among the companies that could benefit from a fee-based structure, while it could also create an additional source of revenue for banks. The development also comes as PhonePe and Razorpay prepare for public listings. 

India’s digital payments market includes PhonePe, Google Pay, Paytm and CRED, among other platforms. 

The immediate question, however, is not whether every UPI payment will become chargeable. The discussions described in the report are specifically focused on larger merchant transactions, while person-to-person transfers are expected to stay outside the proposed fee structure. 

The final charge, the way it will be divided and the exact framework for merchant payments have yet to be decided.