India is laying the legal groundwork for selected merchant charges on its Unified Payments Interface, potentially creating a major new revenue source for banks and fintech companies while preserving free digital payments for consumers.
A change to the zero-fee system
The Taxation and Other Laws Amendment Bill would give India’s central government greater flexibility to decide which electronic payment methods must remain free. Since January 2020, merchants have generally paid no merchant discount rate when accepting UPI payments, a policy designed to accelerate adoption of the government-backed network. The proposed legislation does not introduce a fee or identify which transactions could be charged, but it opens the door for future changes through government notification.
UPI reaches unprecedented scale
UPI has become the central infrastructure of India’s digital economy. The network processed a record 23.66 billion transactions worth ₹29.88 trillion, approximately $313 billion, during July alone. Its rapid growth has allowed consumers and businesses to transfer money instantly through banks and payment applications, while reducing India’s reliance on cash. However, banks and fintech operators argue that maintaining the expanding system requires substantial spending on technology, fraud prevention and cyber security.
Fintech companies see a new revenue opportunity
Analysts believe charges could initially be limited to higher-value transactions involving large merchants. Jefferies estimates that a merchant fee of between 15 and 30 basis points on selected payments could generate an additional ₹50 billion to ₹100 billion, or roughly $525 million to $1.05 billion, in annual industry revenue by the 2028 financial year. This could help payment companies recover some of the costs associated with operating UPI while maintaining free person-to-person transfers and ordinary consumer payments.
Larger payments may be targeted
Transactions exceeding ₹2,000 account for only about 4 per cent of UPI payment volumes but represent close to 70 per cent of the network’s total transaction value, according to estimates cited by financial analysts. Focusing charges on this category could protect small merchants and consumers while allowing banks, payment providers and fintech platforms to develop a more sustainable commercial model. The final structure, including how any revenue would be divided, remains undecided.
PhonePe and Google Pay dominate
Walmart-owned PhonePe and Alphabet’s Google Pay together process nearly 80 per cent of UPI transaction volumes. Both could benefit from a new merchant-fee system, although payment applications are only one part of the infrastructure. Issuing banks, merchant-acquiring institutions and the National Payments Corporation of India may also claim a share of the revenue. The distribution model will therefore be closely watched across India’s financial sector.
Global implications for Indian fintech
The policy debate extends beyond India. UPI is already available in markets including Singapore, the United Arab Emirates and France, and the government wants to expand the system internationally. A viable funding structure would provide more resources for innovation, security and global integration. However, policymakers must avoid weakening the affordability and accessibility that made UPI successful. India’s challenge is to create a commercial model without undermining one of the world’s most widely used public digital-payment systems.
Newshub Editorial in Asia – 19 August 2026
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