UPI Merchant Fees: What Namibia Can Learn from India's Digital Payment Shift
India's Unified Payments Interface (UPI) is about to change how merchants pay for digital transactions. Starting October 15, 2026, merchants will pay a fee on UPI payments above Rs 2,000, ending six years of zero cost. The National Payments Corporation of India (NPCI) released detailed FAQs on September 15, clarifying who pays, who is exempt, and why. For Namibia, watching this shift offers valuable lessons as the country pushes toward broader financial inclusion and digital payments.
What exactly has been announced?
The NPCI has set a merchant discount rate (MDR) of 0.4% on person-to-merchant (P2M) UPI payments above Rs 2,000. This fee is paid by the merchant to its acquiring bank. For transactions of Rs 75,000 and above, the fee is capped at Rs 300. Payments up to Rs 2,000, which make up over 95% of P2M volume, attract no charge. The framework takes effect on October 15, giving banks, payment aggregators, and fintech apps time to update their systems.
Will consumers pay anything?
No. UPI remains free for consumers, for every payment of any size. Person-to-person transfers, including self-transfers between a user's own accounts, stay free for both payer and receiver, with no monthly caps or quotas. UPI apps are explicitly barred from charging platform fees on UPI payments. Scanning a QR code at a local market, kirana store, or tea stall remains free, whatever the amount.
Can shops recover the fee from customers?
Not officially. Merchants cannot pass on MDR charges to customers paying by UPI; consumers pay only the posted price. The NPCI argues that merchants will absorb the cost as routine overhead, offset by footfall, higher ticket sizes, and lower cash-handling risk. The regulator sees no incentive for merchants to raise shelf prices.
Street vendors and small shops are protected
Small merchants under the P2PM category, those receiving up to Rs 1 lakh a month via UPI QR into their accounts, pay zero MDR regardless of transaction size. Even a payment above Rs 2,000 to a P2PM merchant carries no charge, since applicability depends on the merchant's account category, not the individual transaction. Existing QR codes and soundboxes work unchanged, with no re-registration or GST registration needed.
Do all sectors pay 0.4%?
No. Categories like fuel, insurance, telecom, railways, utilities (electricity, water, piped gas), and education pay a flat Rs 5 per transaction above Rs 2,000, instead of a percentage. This protects thin-margin and public-service sectors from cost escalation. Capital-market payments, including mutual funds, brokers, and securities, attract just 0.02%, capped at Rs 300, to encourage retail participation.
AutoPay mandates and credit-linked UPI
Recurring mandates, such as utility bills, OTT subscriptions, and SIPs, carry no prescribed MDR. Credit-linked UPI, like RuPay credit cards on UPI or credit lines, falls outside this framework. These transactions follow standard credit-card rules, since they are short-term loans funded by issuing banks. The new MDR applies only to direct account-to-account UPI payments.
Why introduce a charge at all?
UPI handled 24.51 billion transactions worth Rs 29.9 lakh crore in August alone, nearly 800 million a day. Running the system, including servers, cybersecurity, fraud detection, and bank support, costs an estimated Rs 20,000 crore a year. Government incentives were bridge funding, never a permanent substitute, and budget dependence creates uncertainty. The NPCI says MDR proceeds stay within the payments ecosystem, funding infrastructure, innovation, and security. A commercial revenue model also lets smaller fintechs compete where only deep-pocketed players could previously absorb losses.
How does it compare with card fees?
Favorably. Credit-card MDRs typically run 1.5-2.5%, and debit cards up to 0.9%. At 0.4% with a Rs 300 ceiling, UPI remains the cheapest digital acceptance mode for merchants. Before the 2020 waiver, UPI itself carried an MDR of up to 0.3%.
End of support for small merchants?
No. A dedicated fund carved out of MDR proceeds will subsidise payment infrastructure in tier-III to -VI centres, including the Northeast, J&K, and Ladakh. It will also finance merchant onboarding and incentives for small-merchant transactions, dovetailing with schemes like PM SVANidhi and PM Vishwakarma. The detailed framework will take three months.
What is still to be worked out?
The division of the fee remains open. The UPI and Services Steering Committee, headed by the NPCI, decides operational criteria, including how MDR revenue is shared among issuing and acquiring banks, payment apps, and aggregators, along with category-wise caps. The small-merchant fund's design follows within three months, in consultation with the Reserve Bank of India.
FAQ: Key questions on UPI merchant fees
Will UPI remain free for consumers?
Yes. UPI stays free for consumers for all payments, including person-to-person transfers and self-transfers. Merchants pay the MDR, and UPI apps cannot charge platform fees on UPI payments.
Are small merchants exempt from the new fee?
Yes. Small merchants receiving up to Rs 1 lakh a month via UPI QR are exempt from MDR, regardless of transaction size. The exemption depends on the merchant's account category, not the individual transaction.
Why is the NPCI introducing this fee now?
The fee covers the rising operational costs of the UPI system, estimated at Rs 20,000 crore a year. Government incentives were temporary, and a commercial model ensures sustainable funding for infrastructure, security, and innovation.
How does the UPI fee compare to credit cards?
UPI's 0.4% MDR with a Rs 300 cap is significantly lower than credit-card MDRs, which typically range from 1.5% to 2.5%. This keeps UPI the cheapest digital acceptance mode for merchants.