NEW DELHI — India's parliament passed legislation on Aug. 4 authorizing banks and payment service providers to levy fees on commercial transactions via the Unified Payments Interface, reversing a policy that had banned such charges since 2020.
The UPI platform, which celebrated its tenth anniversary on Aug. 25, has transformed money movement across India. Its QR code appears on street vendor carts, utility bills and e-commerce checkout pages.
Before UPI's 2016 launch, cash dominated nearly all transactions by volume and two-thirds by value. Cheques accounted for most non-cash dealings.
In its first 12 months, Indians completed 73 million UPI transactions valued at 227 billion rupees. By July, the platform facilitated 24 billion transactions worth nearly 30 trillion rupees. It now accounts for more than 85 percent of all non-cash transactions, while cheque usage has fallen to 0.2 percent. The network serves 550 million users, representing over half of India's adult population.
UPI's success stems largely from its simplicity. Users link their bank account to a mobile application and send or receive money by scanning a QR code or entering a phone number, eliminating the need to share banking details or use cards.
Other factors accelerated adoption. The Jio telecom network, launched in 2016, introduced aggressive pricing that slashed mobile data costs and brought millions of Indians online. Prime Minister Narendra Modi's November 2016 decision to invalidate 86 percent of cash rupees in circulation by cancelling 500- and 1,000-rupee notes also spurred digital payments, though the policy severely impacted the informal economy. UPI transactions jumped from 100,000 in October 2016 to 2 million by December 2016.
The government's 2020 policy banning fees on commercial UPI transactions further boosted adoption. Unlike credit or debit card payments, where merchants pay fees split between network providers and issuing banks, UPI payments incurred no cost for merchants.
The amendment to the Payment and Settlement Systems Act, 2007, provides the first legal authority since 2020 for the government to permit charges on UPI transactions. New fee rates have not been established. Charges are expected to apply only to commercial transactions above a minimum amount, excluding most small transfers such as payments to street vendors or informal workers. The legislation explicitly states it does not impose any tax or transaction charge on users making payments.
The move has met with negative public sentiment in India, where policies perceived to favor large businesses often face widespread opposition.
