UPI Payments Stay Free for Consumers: New Business Charging Model Explained

Unified Payments Interface (UPI) payments will continue to be free for consumers, PhonePe cofounder and CEO Sameer Nigam and Razorpay cofounder and CEO Harshil Mathur confirmed.

They advocate for a sustainable revenue model to support the digital payment infrastructure and businesses, with Mathur emphasizing its necessity for continuous investment in UPI’s reliability, security, and innovation to prevent system deterioration.

The Push for Sustainable Funding

The Payments Council of India (PCI) supports implementing charges for larger businesses. This revenue aims to fund crucial aspects such as technology, cybersecurity, and fraud prevention within the payment ecosystem.

• Small businesses, including kirana stores, are expected to remain exempt from these charges.
• Any merchant service charge would constitute a commercial agreement between merchants and payment providers, not a direct charge to customers, the PCI clarified.
• These developments follow the Lok Sabha’s approval of the Taxation and Other Laws (Amendment) Bill, 2026, which removes a legal barrier against imposing a merchant discount rate (MDR).
• Finance Minister Nirmala Sitharaman stated that any future MDR would be borne by businesses, not consumers.
• The NPCI-led UPI and Services Steering Committee will consider MDR only after the Bill is cleared by Parliament.

MDR Shifts and Market Dynamics

MDR, a fee paid by merchants for processing digital payments, has been zero on UPI transactions since January 2020, leading the ecosystem to rely on government incentives and other financial products for revenue.

• The Centre is considering an MDR of 5-7 basis points for large merchants with an annual turnover of Rs 1-1.5 crore or more.
• Peer-to-peer payments and small merchants are anticipated to remain exempt from these proposed charges.
• A parliamentary standing committee previously recommended a graded MDR for larger merchants and incentives for low-value payments in smaller cities.
• In July, UPI processed 23.6 billion transactions, totaling Rs 29.9 lakh crore.
• PhonePe and Google Pay collectively dominated nearly 80% of this transaction volume.

This evolving framework signals a strategic shift toward ensuring the long-term viability of India’s dominant digital payment system through business contributions, without directly impacting the end-user.