India moves to give its instant payments network a business model
India has introduced new legislation laying the legal groundwork to overhaul the zero-fee model underpinning its Unified Payments Interface (UPI), potentially allowing merchants to be charged on some transactions for the first time since fees were scrapped in January 2020. The move follows years of disagreement between the finance ministry, the central bank and payment companies over how to sustainably fund the network as transaction volumes and infrastructure costs have soared, with industry figures such as Pine Labs' chief executive welcoming the change as necessary to fund continued investment and international expansion.
UPI processed a record 23.66 billion transactions worth around $313.4 billion in July alone. The legislation does not itself set fees or specify affected transactions, but analysts at Jefferies estimate merchant charges on higher-value payments could generate $525 million to $1.05 billion in additional annual revenue by fiscal 2028, while reports suggest officials may limit charges to larger merchants or transactions above roughly $21, which account for a small share of volume but most transaction value. The change will be watched closely by other countries using UPI, including Singapore, the UAE and France, and could significantly affect PhonePe and Google Pay, which together handle nearly 80% of UPI transactions.
In short
- India moves to let UPI charge merchants fees after years of free use.
- New law sets legal groundwork; fee details still to be decided.
- Analysts see up to $1.05bn extra annual revenue by 2028.
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The case for
The sustainability argument is compelling: processing 23.66 billion monthly transactions requires substantial infrastructure investment, and indefinitely operating a system of this scale without revenue has proven untenable globally. Targeted fees on higher-value transactions and larger merchants—which represent most transaction value but minimal volume share—would generate sufficient revenue for continued investment and international expansion without impacting average users or small transactions. Industry operators reasonably argue that sustainable funding models are essential for maintaining network quality, reliability and competitiveness in international markets.
The case against
The zero-fee model was a deliberate policy choice that drove financial inclusion and democratised access to digital payments, particularly benefiting lower-income users and small merchants who might face barriers under a fees regime. Rather than privatising costs through user charges, the government could maintain UPI as foundational digital infrastructure funded publicly—similar to roads or utilities—if it serves broader economic and social goals. Introducing merchant fees risks undermining system trust, reducing transaction frequency and organic growth, whilst establishing a problematic precedent that vital digital infrastructure should rely on user charges rather than public sustenance.
Explained simply
The Unified Payments Interface, or UPI, is India’s instant payments system. It lets people send money between bank accounts, often by scanning a QR code, and is used for everyday purchases as well as larger payments. The National Payments Corporation of India operates the network.
Since January 2020, UPI payments have generally carried no fee for users or merchants. As use has grown, banks and payment companies have faced rising costs to maintain the system and process transactions, while government support has helped fund it. The new law creates room for charges but does not set them or say which payments would be affected.
The debate involves India’s finance ministry, central bank and payment firms, including PhonePe and Google Pay, which process much of UPI’s activity. Any fees could affect merchants’ costs and how payment companies fund their services and future expansion. Other countries that use or have adopted UPI will also be watching how India handles the change.