UPI for Business: India Considers Changes to Merchant Payment Rules
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UPI for business has transformed the way companies, retailers, and small merchants accept digital payments in India. However, the business model supporting the country’s Unified Payments Interface (UPI) could change as new legislation creates the possibility of introducing charges on selected merchant transactions in the future.
The proposed changes do not immediately introduce any fees for businesses. Instead, the legislation provides a framework that could allow India to review its current zero-Merchant Discount Rate (MDR) system, under which merchants have accepted UPI payments without transaction charges since 2020.
The move comes as UPI has become one of the world’s largest digital payment networks, creating new discussions around how the system can be funded sustainably while continuing to support affordable digital payments.
Why UPI for Business May See Changes
The growth of UPI for business has been driven by India’s decision to remove merchant charges in 2020. The zero-MDR model encouraged businesses of all sizes to adopt digital payments by eliminating additional costs.
According to the National Payments Corporation of India (NPCI), UPI processed a record 23.66 billion transactions worth ₹29.88 trillion (around $313 billion) in July.
However, banks, fintech companies, and payment providers have argued that maintaining such a large payment network requires significant investment in technology, cybersecurity, and infrastructure.
Industry participants believe a new model could help recover some of these costs while allowing UPI to continue expanding.
UPI for Business Payment Model at a Glance
| Category | Details |
| Current Model | Zero MDR for merchant UPI payments |
| Possible Change | Charges may apply to selected transactions |
| Status | No fees introduced yet |
| Potential Focus | Larger merchants or higher-value payments |
| Goal | Create a sustainable payment ecosystem |
How Potential Merchant Charges Could Work
The new legislation does not define how future UPI for business charges would be applied.
It does not specify:
- Which businesses would pay fees
- Which transaction values would be affected
- How revenue would be shared between banks, fintech firms, and payment apps
Reports suggest that any future charges may focus on larger merchants rather than applying to all businesses.
This approach could help maintain UPI adoption among small businesses while creating a possible revenue stream for companies supporting the payment infrastructure.
Pine Labs CEO Amrish Rau welcomed the possibility, stating that allowing the industry to recover part of its investment could help support continued innovation and expansion.
Higher-Value Transactions Could Be Considered
Analysts believe future changes to UPI for business may focus on higher-value transactions instead of everyday small payments.
Brokerage firm Bernstein noted that transactions above ₹2,000 account for approximately 4% of UPI payment volume but nearly 70% of transaction value.
Because of this difference, larger payments could become a potential area for introducing charges if policymakers decide to modify the current model.
Jefferies estimated that merchant charges between 15 and 30 basis points on selected transactions could generate ₹50 billion to ₹100 billion (around $525 million to $1.05 billion) in annual revenue by fiscal 2028.
These estimates depend on the final policy structure and how fees are implemented.
Impact on Payment Companies
Changes to UPI for business could have a major impact on India’s leading digital payment platforms.
Walmart-owned PhonePe and Alphabet’s Google Pay together account for nearly 80% of UPI transaction volumes, according to NPCI data.
However, the benefits for these companies would depend on how any merchant fee revenue is distributed among banks, payment applications, and other participants in the UPI ecosystem.
The final impact will become clearer only after detailed regulations are announced.
UPI’s Growing Global Role
India’s approach to UPI funding will also be closely watched by countries where the payment system has expanded, including Singapore, the United Arab Emirates, and France.
As more markets explore digital payment infrastructure, India’s ability to balance affordability with sustainability could influence how similar systems develop globally.
Key Takeaways
- UPI for business may see changes as India reviews its current zero-MDR model.
- The new legislation does not immediately introduce merchant fees.
- Future charges could potentially target selected transactions or larger merchants.
- The goal is to support long-term investment in UPI infrastructure.
- PhonePe and Google Pay could be affected depending on future revenue-sharing rules.
Frequently Asked Questions
Will businesses immediately pay fees for UPI transactions?
No. The legislation only creates the possibility of future changes. No merchant charges have been introduced at this stage.
Who could be affected if UPI merchant fees are introduced?
The final decision has not been announced, but reports suggest larger merchants or higher-value transactions may be considered.
Will consumers have to pay for UPI payments?
Current discussions indicate that consumer and peer-to-peer payments are expected to remain accessible.
Why is India considering changes to UPI?
The review aims to create a sustainable funding model as UPI transaction volumes and technology costs continue increasing.
Conclusion
The future of UPI for business could represent a major change in India’s digital payment ecosystem. While the zero-MDR model helped UPI achieve widespread adoption, growing infrastructure demands have created discussions about long-term sustainability.
The proposed legislation does not confirm that merchant fees will be introduced, but it opens the possibility of a new approach where selected transactions may contribute toward maintaining the network.
India’s challenge will be balancing the needs of payment companies and businesses while ensuring UPI remains accessible for millions of users and merchants.
