India considers UPI merchant fees, moving the instant-payments rail closer to the card model

India’s UPI has become the country’s preferred payment method by giving consumers instant phone-based payments and merchants fee-free acceptance. Now Reuters says regulators may revisit that structure, because some industry observers think zero merchant fees eventually starve the ecosystem of the revenue needed to keep investing.

1. UPI is the archetype for real-time payments systems, but the model that made it so widely adopted is also the one under scrutiny: merchants currently pay no fee to accept it. The concern is straightforward enough — if there is no revenue stream, payments providers have less reason to keep building infrastructure, adding features, or funding the sort of acceptance tech merchants rely on.
2. Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, said fee-free acceptance makes sense early on, when the goal is to drive adoption and expand the network. But once the market matures, he said, companies that provide payments technology to merchants “don’t want to include UPI if there is no revenue to be made.” That is the part payment operators will recognize immediately: if the economics disappear, coverage and product support tend to follow.
3. The card payments model offers the counterexample. Merchant transaction fees have long funded network infrastructure, security, fraud prevention, and product innovation. Apgar noted that in the U.S. market, tech companies delivering POS platforms and other merchant-facing tools thrive because they receive a share of the fees merchants pay to accept payments. In other words, the fee is not just a cost line; it is the mechanism that keeps the acceptance stack alive.
4. The risk, he said, is that without those economics, customer experience on UPI acceptance could start to lag behind other payment types. “Once that happens, and the flywheel starts spinning the other way, it’s hard to reverse,” he said. For PSPs and merchant-tech providers, that is the practical warning: a free network can be great until the economics stop supporting the quality merchants expect.
5. India’s lawmakers could still take a narrower approach instead of introducing blanket merchant fees. Reuters said one option would be to charge only on transactions above a certain value or only to larger merchants, while smaller businesses and low-value payments stay exempt. Apgar said the “nominal merchant fees” being discussed would create enough revenue to keep merchant-facing tech companies investing in UPI acceptance without “unfairly burdening merchants.”

For high-risk PSPs, the useful detail is not just whether UPI starts charging fees, but where the line gets drawn. A threshold-based model would look very different from a broad card-style merchant discount rate: it could preserve access for small-ticket flow while changing the economics for larger merchants and the providers serving them.