Indian Merchants Fear UPI Fees Will Eat Into Thin Profits

For many Indian businesses, the appeal of the Unified Payments Interface has been simple: customers pay with their phones, and the full amount reaches the merchant. That advantage could soon change after parliament passed a bill paving the way for fees on some UPI transactions.

Zachariah Jacob, who runs three Mahabelly restaurants in Delhi, says around 60 per cent of payments at his outlets now arrive through UPI. The remainder comes through cards and cash. A credit card transaction can cost his business about 1.25 to 1.7 per cent in fees, he said, while direct UPI payments currently carry no such cost.

“

If a merchant makes a 2 per cent margin and pays 0.5 per cent (as merchant charge), 25 per cent of his profit is gone.

The bill, passed on Aug. 10, would allow banks and payment companies to charge merchants for UPI transactions above a threshold that has not yet been determined. The Ministry of Finance said the fee would be nominal and significantly lower than card charges. The possibility has nevertheless unsettled merchants who operate on narrow margins.

Piyush Jhunjhunwala, founder and chief executive of investment platform Stockify, said even a small charge could cut deeply into earnings. “If a merchant makes a 2 per cent margin and pays 0.5 per cent (as merchant charge), 25 per cent of his profit is gone,” he told CNA.

The impact could be especially significant for businesses handling expensive purchases. At electronics stores run by Arif Hanfi in Maharashtra, customers can pay by UPI, card or bank transfer. Some transactions reach tens of thousands of rupees, making even a modest fee a notable additional cost. “The merchant will not pay from his pocket,” Hanfi said.

“

The merchant will not pay from his pocket.

Restaurant representatives also warn that fees could weigh on an industry where individual bills are small but transactions are frequent. Zorawar Kalra, a restaurateur and vice-president of the National Restaurant Association of India, said UPI has become essential to the sector.

UPI now accounts for 57 per cent of user transactions, compared with 38 per cent for cash, according to a government study released in February. An International Monetary Fund report described it in 2025 as the world’s largest real-time payment system by volume. The government spent about 82.7 billion rupees, or US$876 million, on UPI incentives over the four financial years ending in March 2025 to promote digital payments.

“

UPI has become absolutely critical for the restaurant business.