What Is This New UPI Fee?
The National Payments Corporation of India (NPCI) has introduced what’s called an 'interchange fee'. This is not a fee for customers. It applies specifically to certain Person-to-Merchant (P2M) transactions. The fee is up to 1.1% and is levied only when
a customer pays a merchant over ₹2,000 using a Prepaid Payment Instrument (PPI) like a digital wallet through UPI. Think of it as a backend charge between financial institutions to cover processing costs, similar to how credit card fees work. Bank account-to-bank account UPI payments are completely unaffected, regardless of the amount.
Who Actually Pays the Fee?
To be clear: you, the customer, do not pay this fee. The charge is paid by the merchant’s bank (the acquirer) to the customer’s wallet provider (the PPI issuer). The entire process happens behind the scenes. While it’s possible that some larger merchants might eventually adjust their pricing to account for this new operational cost, they are not supposed to pass the fee directly on to consumers at the point of sale. The government has made it clear that customers should only pay the listed price for goods and services.
Your Daily UPI Is Still Free
This is the most important takeaway. All Person-to-Person (P2P) money transfers remain 100% free, no matter the amount. Sending money to a family member, splitting a bill with a friend, or paying your domestic help will not cost you anything. Furthermore, most merchant transactions also remain free. Any payment made from your bank account to a merchant is free. Payments to merchants under ₹2,000, even from a wallet, are also free. In fact, official estimates suggest that approximately 96% of all merchant transactions will not be affected by this new fee structure.
Why Was This Fee Introduced?
The introduction of the interchange fee is about creating a sustainable business model for the digital payments ecosystem. Companies that issue PPI wallets incur costs for technology, security, and operations. Unlike direct bank transfers, wallet transactions involve these intermediary companies. The fee provides a much-needed revenue stream for them, which allows them to compete, innovate, and improve their services. This move helps ensure that all players in the UPI ecosystem, not just banks, have a viable path to long-term operation, which ultimately benefits consumers through better services and more competition.
What Does This Mean for Small Businesses?
The framework has been designed to protect small businesses. Small merchants, like street vendors and local kirana stores, who receive up to ₹1 lakh per month via UPI QR codes will not have to pay any fee on any UPI transaction they receive. This ensures that the new fee structure does not burden the smallest traders who have increasingly relied on digital payments. The fee is targeted at larger merchants who process high-value transactions through PPI wallets. For certain essential sectors like fuel, railways, and agriculture, a lower, flat fee is applied to prevent significant cost increases.
