India delays UPI merchant fees until after Deepavali; retailers weigh impact

India has postponed the 0.4 per cent transaction fee on UPI payments above 2,000 rupees until after Deepavali, giving retailers more time to prepare. Merchants are concerned about added costs, while experts argue the fees are needed to sustain the fast-growing payments network.

Retailers in India are preparing for upcoming transaction fees on the country's widely used Unified Payments Interface (UPI) system, after authorities delayed their implementation until after Deepavali. The National Payments Corporation of India (NPCI), which operates the system, announced on Tuesday (Oct 13) that a 0.4 per cent charge for merchants on transactions exceeding 2,000 rupees (US$21) would be postponed until after the holiday.

The rollout was initially scheduled to take effect on Thursday, while Deepavali falls on Nov 8. The deferral gives businesses additional time to prepare for a change that will end more than six years of zero-cost UPI payments in India.

UPI has transformed the way Indians pay for goods and services, allowing users to transfer money instantly through a mobile app. The platform is used by more than 500 million people and supports transactions ranging from small purchases at roadside stalls to larger retail spending. NPCI has said the fees are needed to help cover the costs of maintaining the system, and the upcoming charges will be borne by merchants rather than consumers.

According to NPCI data, more than 24 billion transactions worth over US$300 billion were processed through UPI in September alone. Around 95 per cent were below the 2,000-rupee threshold and would not have attracted the fee. Still, retailers are concerned that the additional costs could affect their businesses, particularly as UPI has become the dominant mode of payment for many customers.

"Now, most of our customers make payments using UPI. Seventy per cent of them make UPI payments," said Shubham Dubey, owner of clothing store Mohini Collections, adding that the rest pay by cash or cards. Asked how his business might respond once the fees are implemented, Dubey said he would suggest that customers make payments in cash.

Experts say retailers are likely to adopt different strategies depending on their business models and margins once the fees come into effect. "Some will absorb the charge because accepting UPI helps them retain customers and complete sales," said Sohom Banerjee, managing director of advisory and research firm Quantive Advisory. "Others may reduce discounts, adjust prices or encourage a different payment method. Some may prefer cash for particular purchases."

The postponement means the fees will not take effect during the Deepavali shopping season, which typically sees a surge in spending on items ranging from clothing and electronics to household goods. While merchants have focused on the potential cost impact, experts say imposing fees can ensure the long-term sustainability of UPI, whose rapid growth has created increasing demands for investment.

"The economic rationale is that UPI's success has created a continuing need for investment," Banerjee said. "The ecosystem needs cybersecurity, fraud monitoring, customer support, dispute resolution and arrangements for settlement." Latest figures show UPI transaction volumes have grown about 23 per cent year-on-year, underscoring the scale of the infrastructure supporting the platform.

Reserve Bank of India governor Sanjay Malhotra said earlier this month that the fees were unlikely to significantly affect usage. "We do not see any drop in volumes, and I don't personally think that a small fee will have a major impact on the volumes," he said. According to experts, the challenge now is to ensure the system can pay for its own growth without discouraging the millions of businesses and consumers who have come to rely on it.