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UPI merchant fee likely to be set at 5-7 basis points

Published July 16, 2026 at 10:33 AM UTC

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The Unified Payments Interface (UPI) in India may soon see the introduction of a merchant discount rate (MDR) set between 5 and 7 basis points. This move, currently under discussion, marks a potential shift in the cost structure for digital transactions that have historically been free for consumers and merchants alike. A basis point is one-hundredth of a percentage point, meaning a 5-7 basis point fee would equate to a charge of 0.05% to 0.07% per transaction.

For years, the Indian government and the National Payments Corporation of India (NPCI) have promoted UPI as a zero-cost ecosystem to encourage mass adoption of digital payments. This strategy successfully transformed the country's retail landscape, making UPI the preferred method for everything from small street-side purchases to large utility payments. However, the immense volume of transactions has created significant infrastructure and maintenance costs for banks and payment service providers.

If implemented, the fee would primarily apply to merchants rather than individual users. The objective is to create a sustainable revenue model for the banks that invest heavily in the servers, security, and technology required to process billions of transactions every month. By sharing the cost burden, regulators hope to ensure that the digital payment infrastructure remains robust and capable of scaling further.

Small businesses and large retailers are now assessing how this change might impact their bottom lines. While the percentage is small, the cumulative effect on high-volume merchants could be notable. Industry analysts suggest that the government will likely phase in these charges carefully to avoid discouraging the use of digital payments, which remains a key pillar of the national financial inclusion strategy.

Market participants are waiting for official guidelines from the Reserve Bank of India and the NPCI. Until then, the exact implementation timeline and the specific categories of merchants that might be exempt from these fees remain subject to change. The focus remains on balancing the need for a self-sustaining payment network with the goal of maintaining high digital transaction growth.