India's UPI Payment System to Introduce Transaction Fee for Transfers Above Rs 2,000

India's leading digital payment platforms, including PhonePe, Paytm, and MobiKwik, have announced their support for the introduction of a Merchant Discount Rate (MDR) on certain Unified Payments Interface (UPI) transactions. Starting October 15, 2026, a 0.4% MDR will be applied to Person-to-Merchant (P2M) transactions valued above Rs 2,000, with a cap of Rs 300 for transactions of Rs 75,000 and above.

Transactions below Rs 2,000 and all Person-to-Person (P2P) transfers will remain free of this charge. For specific categories like fuel, insurance, and railways, a flat MDR of Rs 5 will apply to transactions above Rs 2,000. This policy shift aims to address the financial sustainability of the UPI ecosystem, which has operated without transaction-based revenue for years.

Industry leaders argue that the massive scale of UPI has generated significant operational costs that can no longer be absorbed without a revenue stream. "The question is about how to make the industry sustainable while still having enough money to also rapidly continue growing," said Sameer Nigam, CEO of PhonePe. He emphasized the need for a revenue model comparable to other global payment systems and domestic instruments to fund necessary investments in areas like cybersecurity and compliance.

Upasana Taku, co-founder and CEO of MobiKwik, highlighted that processing UPI transactions incurs costs, such as server expenses, which were previously uncompensated. Vijay Shekhar Sharma, founder and CEO of Paytm, described the change as making UPI self-reliant, moving away from a grant-based model. The companies expect the new MDR to level the playing field and enable future growth by providing a sustainable economic model.

The executives stressed that the new charges will not affect individual consumers making small purchases or transferring money to friends and family. The focus remains on ensuring the long-term viability and development of the UPI system by introducing a fee structure for larger business transactions, thereby supporting its continued expansion and security.