India Delays 0.4% UPI Merchant Fee After Retailer Backlash

India has shelved the planned October 15 rollout of a 0.4% merchant fee on its flagship digital payments network, after retailers across the country pushed back hard against the charge.

The National Payments Corporation of India (NPCI), which operates the Unified Payments Interface (UPI), said Tuesday it was postponing the fee — which would apply to eligible merchant transactions above ₹2,000 (about $21) — citing the festive shopping season. The rollout will now happen after Diwali, one of India's biggest shopping periods. NPCI did not give a new date.

The stakes are enormous. In September alone, UPI processed 24.07 billion transactions worth ₹29.37 trillion — roughly $305 billion in a single month. That works out to nearly 800 transactions per second, around the clock, all flowing through a system merchants have used for free since 2020.

Why did the fee trigger a revolt?

The 0.4% charge, announced last month, would break with India's years-long policy of keeping UPI free for merchants. Retailers and petrol pump operators opposed it openly — some warned they could simply stop accepting UPI payments if the fee took effect.

That threat carries real weight. UPI has become the backbone of India's digital payments system, powering apps such as Google Pay, PhonePe, and Paytm — a market long dominated by Google and PhonePe. The government built that dominance by keeping merchant payments free and subsidizing banks and payment providers to cover their costs.

UPI wasn't always free. Banks and payment providers once charged merchants per transaction, but the government scrapped those fees in January 2020 to push people away from cash, long the dominant way Indians paid for goods and services. Transaction volume and value have climbed steadily since.

What does this change for merchants and payment firms?

For merchants, the delay buys breathing room through the festive season — but not a reprieve. The fee is postponed, not cancelled, and NPCI's carve-outs still stand:

• Payments of ₹2,000 or less are exempt
• Small merchants receiving under ₹100,000 (about $1,033) a month via UPI are exempt
• The fee is capped at ₹300 (around $3) for larger transactions

For banks and payment companies, it's another wait. Citing industry estimates, NPCI said last month that running UPI costs about ₹200 billion a year — around $2.1 billion — across server capacity, fraud prevention, and technical support. Those firms have argued for years that they need a way to recoup those costs as transaction volumes climb.

NPCI said it would distribute the collected fees among participants in the UPI ecosystem to fund infrastructure, cybersecurity, and fraud prevention.

The bigger picture

The friction isn't purely domestic. NPCI set up its international arm in April 2020, and UPI now operates in several countries, including Singapore, the United Arab Emirates, and France. A fee structure that stabilizes the network's economics at home would strengthen the case for scaling it abroad — but only if merchants stay on board.

The open question is the new date. NPCI has committed to launching after Diwali, but with retailers openly threatening to drop UPI acceptance, the terms of the fee — not just its timing — may need another look before India reverses five years of free payments.