The Charge Isn't for Everyone
First, let's be clear: for the vast majority of users, nothing has changed. Person-to-person (P2P) money transfers to friends and family remain completely free. Likewise, most payments you make by scanning a QR code at a local shop from your bank account
are also unaffected. The discussion around charges stems from a specific levy called an 'interchange fee'. This fee applies only to a particular type of transaction: when a customer pays a merchant using a Prepaid Payment Instrument (PPI) via UPI. PPIs are essentially digital wallets where you store money, such as Paytm Wallet or Amazon Pay Wallet. The fee only kicks in for transactions over ₹2,000.
How the Interchange Fee Works
The interchange fee is not paid by the customer. It is a charge paid by the merchant's bank (the acquirer) to the wallet issuer (the PPI provider). The National Payments Corporation of India (NPCI) set this fee at up to 1.1% for merchant transactions over ₹2,000 made using a PPI. The rationale is to create a sustainable revenue model for payment service providers and wallet companies. These companies incur significant costs to build, maintain, and secure the payment infrastructure. This fee helps them cover those costs, similar to the Merchant Discount Rate (MDR) that has long existed for credit and debit card payments.
Which Businesses Feel the Impact?
The introduction of the interchange fee primarily affects medium to large-sized merchants who process high-value transactions. Think of organised retail chains, large e-commerce websites, and other established businesses that accept payments from digital wallets. These are the businesses most likely to see transactions above the ₹2,000 threshold paid via a PPI. For instance, a supermarket where a customer pays a ₹3,500 bill using their PhonePe wallet balance would trigger this fee for the merchant. In contrast, most small and unorganised merchants, such as local kirana stores or vegetable vendors, are largely unaffected. Their transaction values are typically below the ₹2,000 limit, and many of their UPI payments come directly from customers' bank accounts, not wallets.
The Government’s Long-Term View
The government and the Finance Ministry have repeatedly clarified that UPI is a digital public good and there are no plans to levy charges on consumers for regular UPI transactions. Recent amendments to the Payment and Settlement Systems Act in August 2026 have given the government the legal flexibility to introduce a Merchant Discount Rate (MDR) in the future, but officials have stressed this is an enabling provision, not an immediate plan to charge everyone. Any future MDR would likely be nominal, apply only above a certain threshold, and be decided by an NPCI-led committee, ensuring the vast majority of merchant transactions remain free. The core goal is to ensure the long-term sustainability and security of the UPI ecosystem as it continues its massive growth.
