NPCI Defers UPI Merchant Fee Until After Diwali

The National Payments Corporation of India has deferred the introduction of a merchant discount rate on selected Unified Payments Interface transactions until after Diwali. The UPI and Services Steering Committee took the decision on 13 October, citing the festive season.

Under the framework announced on 15 September, a 0.4 percent fee was scheduled to apply from 15 October to eligible bank-account-funded person-to-merchant payments above Rs 2,000, with a cap of Rs 300 per transaction. Person-to-person transfers and payments up to Rs 2,000 were to remain free. Small merchants below a monthly threshold were also exempt, and merchants were prohibited from passing the fee to customers. NPCI said the income would support expansion of the merchant network, payment infrastructure and fraud controls.

The postponement follows representations from merchant associations, including the All India Mobile Retailers Association and the All India Consumer Products Distributors Federation. They asked for a delay during the peak festive sales period, a higher exemption threshold for small merchants, and an exemption for merchant-to-merchant transfers. NPCI stated that the revised implementation date will be notified separately and that the charge will take effect immediately after Diwali.

UPI processes the large majority of retail digital payments in India. Person-to-person transfers still account for a substantial share of transaction value, while merchant payments have grown rapidly. The introduction of any fee on the merchant side marks a shift from the zero-MDR model that has applied to most UPI transactions since the system scaled. Banks and payment companies had viewed the fee as a future revenue stream; the delay pushes that revenue back by several weeks at minimum.

Around 96 percent of merchant UPI transactions are expected to remain outside the new framework once it is implemented, according to earlier government and NPCI statements. The affected slice consists mainly of larger-value payments at non-exempt merchants. For a Rs 5,000 transaction the 0.4 percent rate would equal Rs 20, subject to the final operational rules. Categories such as railways, telecom, insurance and fuel had been discussed for possible flat fees in some versions of the proposal.

The festive period from October through December typically produces a sharp rise in consumer spending and therefore in digital payment volumes. Merchants argued that introducing a new cost structure in the middle of that surge would complicate pricing, reconciliation and customer communication. NPCI’s decision keeps the existing free model in place through the peak weeks and gives payment service providers additional time to adjust systems.

Former State Bank of India chairman Dinesh Khara described the deferment as a signal of clear intent to proceed rather than an indefinite pause. He said stakeholders would use the interval to prepare. No official has indicated that the fee itself has been cancelled; only the start date has moved.

For consumers the immediate effect is none: they continue to pay no charge on UPI. For merchants the relief is temporary and applies only until the post-Diwali date is fixed. For the payments industry the delay is a short-term revenue deferral that does not alter the longer-term move away from a pure zero-MDR regime on higher-value merchant transactions.

NPCI has not published the precise list of exempt categories or the final small-merchant threshold that will apply when the fee begins. Those details will determine how many outlets actually pay the rate. Until the new date is announced, the operational status remains the pre-15 October rules: most UPI payments stay free, and the 0.4 percent charge on eligible transactions above Rs 2,000 is on hold.