India introduces a fee for large payments
Translated with AI assistance
India is changing the economics of one of the world’s most successful government payment platforms. Starting October 15, a merchant fee is being introduced for certain commercial payments via UPI – 0.4% on transactions exceeding 2,000 rupees ($21). At the same time, transfers between individuals will remain free regardless of the amount, as will most small purchases. On September 28, the Supreme Court of India refused to suspend the new system, although it requested explanations from the RBI and the UPI operator – NPCI.
The government emphasizes that the commission – MDR, merchant discount rate – is charged to the seller, not the buyer. It is capped at 300 rupees for payments of 75,000 rupees or more, while a fixed rate of 5 rupees has been set for a number of low-margin industries – railways, fuel, telecom, insurance, and utilities. Small merchants with UPI turnover of up to 100,000 rupees per month are exempt from the payment. According to authorities’ estimates, about 96% of UPI retail transactions will not be affected by the new commission at all.
But the remaining 4% are the largest purchases, which account for a disproportionately large share of the money flow. In August, UPI processed nearly 25 billion transactions worth about 30 trillion rupees ($313 billion) and served more than 550 million users. The platform accounts for around 84% of India’s digital payments by transaction volume and, according to official data, almost half of all instant payments worldwide.
The main reason for the reform is the cost of the infrastructure itself. For six years, UPI developed with virtually no fees for merchants, while the expenses of banks and payment services were partially reimbursed by the government. As the number of transactions grew, the model became increasingly difficult to finance. According to economists’ estimates, the new fee could bring the payments industry 50–100 billion rupees per year, and the potential revenue of payment apps could reach $1 billion annually by March 2028.
There is, however, a downside. PhonePe and Google Pay already control about 80% of the value of UPI transactions, so a significant share of the new revenue could go to these largest platforms, further cementing their positions. Critics also fear that some merchants will try to pass the costs on to buyers or encourage cash payments.
The stakes are also high because UPI has already become an Indian export product. The system operates in one form or another in 11 foreign countries, including the UAE, Singapore, France, Sri Lanka, Mauritius, and Qatar; in 2026, Greece, the Maldives, and Cambodia also connected to the cross-border UPI infrastructure.
What this means for BRICS business
UPI has long been regarded as an example of digital public infrastructure capable of drastically reducing payment costs and providing businesses with a cheap alternative to card systems. Now India is trying to solve the next question: how to make such infrastructure financially sustainable without losing its mass adoption and low cost.
For BRICS countries, which are developing their own fast payment systems and discussing cross-border interoperability between them, this is a practical case study of a future business model. The broader national payment systems become and the more actively they expand abroad, the more pressing the question arises of who will pay for the infrastructure—the state, banks, payment platforms, or business users. The answer determines not only the cost of payments, but also whether national systems will be able to compete with Visa, Mastercard, and major private fintech platforms on the international market.
