India’s payments body has delayed charging merchants on larger UPI transactions until after Diwali. The pause protects the festive season, but it settles the bigger question: the era of entirely free UPI is ending.
The National Payments Corporation of India has blinked on timing, not on principle.
On 13 October, NPCI’s UPI and Services Steering Committee postponed the introduction of a merchant discount rate, or MDR, on some Unified Payments Interface transactions. The charge had been due to start on 15 October. It will now begin immediately after Diwali, on a date still to be announced.
The delay followed pressure from merchant associations, retailers and payment companies, which argued that adding costs during the busiest shopping and wedding season would cause disruption.
What is coming
The framework, announced on 15 September, is narrower than the headline suggests. A 0.4% charge will apply to eligible payments from customers to merchants above ₹2,000, capped at ₹300 for transactions of ₹75,000 or more.
A ₹10,000 purchase would cost the merchant ₹40. Payments linked to capital markets will carry a 0.02% charge, also capped at ₹300.
Most UPI activity stays free. Transfers between individuals and merchant payments up to ₹2,000 carry no charge, and small merchants covered under a separate category remain exempt.
The government estimates that about 96% of merchant transactions will be unaffected. The fee is not a tax: the money will be shared among the banks, apps and networks that process each payment.
Why fee
UPI has become one of the world’s largest payment systems. In September it handled 24.07 billion transactions worth ₹29.37 lakh crore.
But since 2020, when MDR on UPI was removed, the companies that run that system have earned almost nothing from most payments.
They bear the costs of servers, fraud prevention, customer support and onboarding millions of merchants, while relying on government subsidies and other businesses to cover the gap.
That model has created strains. The business has concentrated in the hands of a few large players that can afford losses, and smaller companies have struggled to make money from payments alone.
A modest charge on larger merchant payments is intended to fund investment in security and infrastructure, and to give more firms a reason to compete.
Countries that built similar systems later took a different route. Brazil’s Pix, launched four years after UPI, has always charged merchants a small fee and has still grown rapidly.
India’s experience suggests that making payments free can drive adoption, but leaves no clear way to pay for the system once it becomes essential.
What it means
Payment companies stand to gain most once the charge begins. Shares of Paytm operator One 97 Communications, MobiKwik and Pine Labs recovered their losses on Tuesday after the delay was confirmed.
MobiKwik closed 1.7% higher at ₹245, and Pine Labs rose 1.1% to ₹164.80. Investors read the decision as a postponement, not a cancellation.
For merchants, the impact depends on size. Kirana stores and small traders mostly fall below the ₹2,000 threshold or within the exemption.
Larger retailers, electronics sellers and jewellers, which take many high-value payments, will feel the cost most. Some may pass it on to customers through higher prices or nudge shoppers toward smaller payments or other methods.
The key uncertainty is the start date. NPCI has promised to announce it separately, and industry groups will keep pushing for more time. But the direction is set: India is moving from free payments to cheap ones.
About The Author
