India’s decision to introduce merchant fees on some Unified Payments Interface transactions could create a new revenue stream for payment apps while further strengthening the position of the country’s biggest digital-payment platforms.
Starting Oct. 15, a 0.4% merchant discount rate will apply to specified person-to-merchant UPI transactions above ₹2,000, with the charge capped at ₹300 for transactions of ₹75,000 or more. Person-to-person transfers and eligible smaller merchant transactions will remain free.
The policy marks a major change for an electronic payments system that has operated largely without merchant fees for six years. The new revenue pool could be worth as much as $1.1 billion annually for payment apps by March 2028, according to estimates cited in the report.
PhonePe and Google Pay are positioned to capture a large share of that additional revenue. The two platforms accounted for about 80% of UPI payment value in August, meaning the new fee structure could give them considerably more financial resources than smaller competitors.
The additional income could also change how payment companies approach expansion. Industry sources said the new monetization model may make it more commercially viable for the largest platforms to invest in rural and semi-urban markets, where individual transactions are generally smaller but customer data can support other financial services.
Smaller payment providers, meanwhile, may focus more heavily on higher-value transactions such as ticket purchases, utility payments and business transactions. Executives and analysts cited in the report said the new economics could encourage companies to develop lending and other financial products around UPI rather than competing mainly for transaction volume.
The change could also revive concerns about concentration in India’s digital-payments market. Regulators have previously considered a market-share cap for individual UPI apps, but a decision on the proposed limit has been deferred. The new fee structure could give the largest platforms additional resources to defend or expand their positions.
For merchants, the new cost is intended to be absorbed within the payment system rather than directly charged to customers. The government has said consumers will continue to make UPI payments without a separate fee, while about 96% of merchant transactions will remain unaffected by the new MDR framework.
There are nevertheless concerns about whether some businesses could indirectly factor payment costs into their prices. Government monitoring is expected to focus on how banks, payment aggregators and other participants implement the new rules and whether the merchant cost is passed on to consumers.
UPI’s enormous scale makes the policy particularly significant. The system processed 23.6 billion transactions worth 29.9 trillion rupees in July alone, underscoring how deeply real-time digital payments have become embedded in India’s economy.
The fee shift therefore changes more than the economics of individual transactions. It could influence how payment apps compete, where they invest and how they develop financial services, while also putting renewed attention on market concentration and the long-term structure of one of the world’s largest real-time payment networks.
