India's UPI fee lands on the 4% of merchant payments that carry two-thirds of the value

The average UPI transaction in 2025-26 was about Rs 1,308, which is what Rs 314 lakh crore spread across more than 24,000 crore transactions comes to ^[5][6]. The Rs 2,000 line sits above that average. Only 4% of person-to-merchant transactions cross it, and those carry around two-thirds of the value ^[4].

The rate itself has not been settled. The Indian Express reports a figure of around 0.4% on high-value merchant payments and says the specifics are not clear ^[8]. Two-thirds of last year's Rs 314 lakh crore is roughly Rs 209 lakh crore ^[20], and 0.4% of that is about Rs 84,000 crore ^[21]. That total includes person-to-person traffic, which stays free, so the real base is smaller and Rs 84,000 crore is a ceiling ^[18]. It is still more than four times the Rs 20,000 crore a year that banks and payment service providers have been spending to keep the infrastructure running ^[9][22]. Recovering Rs 20,000 crore from that base takes about 0.10% ^[23]. In August the Finance Ministry said any MDR would apply only to a "limited set" of merchant transactions above a specified threshold and at a nominal rate ^[19].

The Standing Committee on Finance said in a March report that the "absence of MDR makes the UPI ecosystem financially unsustainable" ^[16]. There are 703 entities, banks and payment service providers, facilitating UPI transactions for more than 55 crore users, and they have been funding cybersecurity and capacity upgrades out of revenue earned elsewhere ^[17][9].

The government said it has "advised" banks to ensure merchants do not pass the additional cost to consumers ^[14]. An advisory leaves the decision with the merchant. The Indian Express notes that small merchants have been known to pass credit card MDR to customers ^[24], though the provision Parliament unlocked runs through Section 269SU, which applied to businesses with turnover above Rs 50 crore ^[11][10].

LocalCircles polled more than 20,000 people and found that 12% would keep using UPI if a fee were levied on payments above Rs 3,000 at large merchants, falling to 2% if merchants recovered the fee from them ^[15]. Stated intentions in a poll are cheap, and the substitution has to land somewhere: at a large merchant the alternatives are cash or a card, where MDR runs 1% to 3% on credit and up to 0.9% on debit ^[7]. A merchant paying 0.4% on UPI gains nothing by pushing a customer onto debit at 0.9%. I'd expect the volume to stay and the fee to be absorbed at the top of the merchant distribution, where the amendment reaches ^[13].

Two things would break that. A notified threshold at Rs 2,000 catches transactions the poll never asked about, since it tested Rs 3,000 ^[15]. And visible pass-through at large merchants, which the government has only advised against, would put the 2% figure to work ^[14].