The National Payments Corporation of India (NPCI) has announced the implementation of interchange fees for specific Unified Payments Interface (UPI) Person-to-Merchant (P2M) transactions. These charges will apply to transactions exceeding Rs 2,000 and will become effective from October 15, 2026. The new fee structure primarily targets payments made through Prepaid Payment Instruments (PPIs), including mobile wallets and credit cards linked to UPI.

Under the new directive, merchants accepting UPI payments from PPIs for amounts above Rs 2,000 will incur interchange charges. These fees, to be paid by the merchant acquirer to the issuer, can range up to 1.1% of the transaction value, depending on the merchant category. This move aims to ensure the sustainability and growth of the UPI ecosystem by covering operational costs for Payment System Providers (PSPs) and issuing banks involved in facilitating these transactions.

Crucially, the NPCI clarification specifies that traditional bank account-to-bank account UPI transactions, whether Person-to-Person (P2P) or Person-to-Merchant (P2M) directly from a bank account, will remain exempt from these charges. This means that consumers making UPI payments directly from their linked bank accounts will not be affected by the new fee structure. The focus of the new charges is specifically on transactions where PPIs are utilized as the funding source within the UPI framework.

The interchange fees are structured with varying rates across different merchant categories:

  • Fuel stations: 0.5%
  • Telecom services: 0.7%
  • Education: 1.0%
  • Supermarkets: 1.1%
  • Other categories also feature specific rates within the stated range.

Prior to this announcement, UPI transactions operated under a zero Merchant Discount Rate (MDR) regime, a policy designed to promote digital payments across India. The introduction of interchange fees on PPI-based UPI transactions above a specific threshold marks a shift in the financial model for a segment of the widely adopted payment system.

Looking ahead, merchants who accept significant volumes of UPI payments via PPIs will need to evaluate the impact of these new costs on their business operations. The industry will likely monitor the transition closely as the effective date approaches, assessing any adjustments made by payment service providers and banks in response to the updated fee structure. For consumers, the continued exemption of direct bank-to-bank UPI transactions is expected to maintain its accessibility and cost-free nature for everyday use.