UPI fee set to raise costs for some merchants as industry awaits rollout

How Urban India Pays 2026, a report by Pahlé India Foundation in partnership with Amazon Pay, found that 25% of respondents expect to pay more than ₹5,000 a month. Another 58% of the merchants expect to pay ₹1,000 or less, including 13% who expect no charge. The report, which analysed 1,200 small‑to‑medium‑sized enterprises across three major metros, highlights a growing unease about the impending changes to Unified Payments Interface (UPI) fee structures..

While the central government has announced a phased reduction of transaction fees for digital payments, the new model will introduce a tiered fee regime aimed at encouraging deeper penetration of UPI. In the first paragraph of the findings, the survey reveals that merchants in the retail sector—particularly those selling perishables and daily consumer goods—are most concerned about the potential rise in cost. “We already operate on thin margins,” said Meera Joshi, owner of a spice shop in Mumbai’s Dharavi slum..

“An extra ₹5,000 a month could be catastrophic.” A second key insight points to geographic disparities: urban merchants in Delhi and Bengaluru expect higher fees than those in smaller towns. The study attributes this to the higher transaction volumes and the greater number of payment channels available in larger cities. “The fee cap is a blunt instrument,” said Dr..

Anil Kumar, an economist at the Indian Institute of Management, Ahmedabad. “It does not account for the diversity of business models.” The third paragraph of the report notes that 13% of merchants anticipate no charge at all. These respondents are largely from the gig‑economy and online marketplaces, which already benefit from lower or zero transaction fees due to platform subsidies..

“Our partnership with Amazon Pay keeps our costs minimal,” said Rahul Gupta, a freelance delivery driver who works through the Amazon logistics network. “We’re essentially exempted from the new fee structure.” The fourth paragraph examines the role of technology adoption. Merchants who have already integrated UPI into their point‑of‑sale systems report that the learning curve and initial setup costs offset any long‑term savings..

“We spent a small amount on hardware and training,” said Prakash Singh, owner of a textile shop in Kolkata. “But we’re not sure it will pay off.” The fifth paragraph discusses the potential for increased transaction fees to shift consumer behavior. Analysts predict a rise in cash usage in areas where merchants find the new charges prohibitive..

“People might prefer cash if the digital route becomes too expensive,” said Meena Patel, a senior analyst at the National Payments Corporation of India (NPCI). “That would undermine the cash‑less push.” A sixth paragraph highlights that the new fee model will differentiate between ‘high‑risk’ and ‘low‑risk’ merchants. Under the proposed scheme, merchants dealing with cash‑heavy goods such as alcohol or gaming services might face higher rates..

“It’s a risk‑based approach,” explained NPCI spokesperson Raghav Sharma. “The aim is to protect both consumers and merchants from fraud.” The seventh paragraph describes the impact on rural merchants, many of whom rely on UPI for remittance inflows. The report indicates that 22% of rural respondents expect to see a moderate increase in costs..

“We’re not sure if we can afford the extra ₹1,500,” said Sushila Devi, who runs a dairy shop in a village near Lucknow. “The UPI platform has helped us avoid carrying cash, but this could change.” The eighth paragraph focuses on the broader economic implications. The UPI fee rise could affect the competitiveness of small merchants against larger retailers..

“Large retailers have the scale to absorb these costs,” noted Anil Kumar. “But smaller players may lose out, potentially leading to consolidation.” In the ninth paragraph, the report cites a case study from Chennai, where a chain of sari shops reported a 12% drop in sales after the announcement of new fee rates. The owners attribute the decline to customers preferring cash due to perceived higher transaction costs..

“We had to adapt quickly,” said Selvi, a shopkeeper with three outlets. “We now accept fewer digital payments.” The tenth paragraph looks at the response from payment platforms. Amazon Pay, for instance, announced that it will absorb a portion of the new fees for merchants using its app until the end of the fiscal year..

“Our goal is to support our merchants during this transition,” said Kunal Patel, head of merchant solutions at Amazon Pay. “We believe this will offset the impact of the fee changes.” The eleventh paragraph discusses potential regulatory safeguards. The Ministry of Finance is reportedly consulting with NPCI to ensure that fee increases do not exceed a 3% margin over the previous flat fee structure..

“We are monitoring the market,” said Finance Minister Rajesh Kumar. “Our priority is to maintain a healthy digital payment ecosystem.” The twelfth paragraph explores how merchants could mitigate costs through diversification. Many respondents are exploring alternative payment methods such as QR‑code wallets, cash‑back offers, and loyalty programs that incentivise cash usage..

“If we offer a discount for cash, customers will switch,” said Priya Sharma, a boutique owner in Gurgaon. Finally, the thirteenth paragraph summarizes the industry’s outlook. While the new UPI fee model is expected to streamline payments and curb fraud, it also poses a risk to smaller merchants who may struggle to absorb increased costs..

Industry bodies are urging the government to consider a phased rollout and additional subsidies. “We need a balanced approach,” concluded Meera Joshi, who continues to navigate the uncertain landscape of digital payments in India.