India’s UPI Fee Delay Buys Time, but Merchants Are Already Nudging Shoppers to Cash
India has hit pause on its first broad fee for merchant payments made through UPI, the country’s hugely popular instant payment system. But the delay has not calmed shopkeepers. Many say they will not absorb the charge when it arrives, and some are already steering bigger purchases back to cash.
Key facts
- The National Payments Corporation of India (NPCI), which runs UPI, planned a 0.4% merchant discount rate (MDR) on eligible person-to-merchant payments above ₹2,000, with a cap of ₹300 per transaction for payments of ₹75,000 and above.
- The fee was due to start on 15 October 2026. NPCI pushed it back until after Diwali and has not yet announced a new start date.
- Person-to-person transfers and payments of ₹2,000 or less stay free. The government says about 96% of merchant UPI transactions will not be affected.
- A LocalCircles survey cited by the Financial Times found 83% of merchants were not willing to bear the extra cost.
- UPI handled about 242 billion transactions in its latest financial year, nearly 12,000 times the volume of its first full year.
What is changing, and why now
An MDR is the small percentage a shop pays its bank or payment provider each time it accepts a digital payment. Card payments have always carried one. UPI, launched ten years ago, has instead run on a zero-charge model for users and merchants, which helped it become the default way to pay for everything from street food to rent.
Running that network is not free. NPCI and the banks behind it have long argued that someone has to pay for servers, fraud controls and the steady growth in traffic. The new fee is narrow by design: it only touches merchant payments above ₹2,000, and the customer is not meant to be charged directly. Official guidance says the cost falls on the merchant.
The timing proved awkward. The fee was set to begin just as India entered its peak festive shopping season, when spending on clothes, electronics and gifts jumps. Trader groups pushed back, and NPCI’s steering committee chose to wait until after Diwali.
Why it matters
The bigger story is how merchants are reacting. Many small retailers in India work on thin margins, and a 0.4% charge on a ₹10,000 phone sale is ₹40 they would rather keep. With most refusing to absorb the fee, the obvious alternatives are to raise prices, add a surcharge, or ask customers to pay in notes.
That would feed a trend the Reserve Bank of India (RBI), the central bank, has already noticed. Cash in circulation is about 2.3 times its level of a decade ago, even as UPI has exploded. RBI Deputy Governor Shirish Chandra Murmu has called this a “cash paradox”: digital payments and cash are growing side by side rather than one replacing the other.
For the region, India is a test case. Several Asian countries built national QR and instant payment systems on low or zero fees to win adoption quickly. Once usage is huge, the question shifts to who pays for the rails. How Indian shoppers and merchants respond will be watched by central banks and payment operators across Asia.
There is a Malaysian echo too. Earlier this month, Malaysia’s Ministry of Finance had to deny a viral poster claiming that a service charge on QR payments would start on 1 November. It was fake, but the speed at which it spread shows how sensitive merchants and consumers are to any fee on everyday QR payments.
What to watch
- The new start date: NPCI has said it will announce the revised timeline separately, after the festive season.
- Surcharges at the till: whether merchants openly pass the 0.4% on to shoppers, or quietly favour cash for larger purchases.
- Cash data: RBI figures on currency in circulation over the next few months will show whether the fee nudges spending back to notes.
Related on FinDeskAsia: DuitNow explained · ASEAN cross-border QR payments hit a record
Sources: The Federal (October 2026) · CAclubindia (October 2026) · PYMNTS (October 2026) · Traders Union (October 2026)
