How transaction fee has divided UPI users in India

New Delhi: A new survey has revealed that nearly 40% of UPI users have been charged a transaction fee on one or more of their transactions in the last 12 months.

Payments Council of India (PCI) a representative body of digital payment platforms has written to the Prime Minister demanding introduction of a 0.3% merchant discount rate (MDR) on UPI transactions. PCI has also sought to introduce a MDR structure on RuPay debit card transactions applicable to merchant of all sizes. MDR is the fee that merchants pay banks or companies processing payments for executing a transaction.

It is also a fee that differentiates UPI from Credit Cards where the MDR is levied on merchants, many of who pass it on to the consumer, thereby discouraging them to use credit cards. The UPI has grown at a compounded annual growth rate (CAGR) of 89.3% in volume and 86.5% in value over the past five years, becoming a dominant digital payment method in India.

The Survey:

LocalCircles has conducted its 2025 survey to find out whether there is any change in stance against a user fee. The contribution of UPI to the cumulative digital payments ecosystem has more than doubled in this period, rising from 34% in 2019 to 83% in 2024, according to data from the Reserve Bank of India’s (RBI) payment system report. In 2024, India recorded 208.5 billion digital payment transactions.

Of this, the volume of UPI transactions was 17,221 crores, a 57% increase from the previous year. In 2023-24, the number of UPI transactions was 131 billion, a 57% increase from the previous year. Even as UPI transactions are growing, there remains an unfinished discussion on whether a fee should be charged to users. The issue came to the fore in August 2022 when the Reserve Bank of India (RBI) released a discussion paper proposing a tiered fee structure for UPI payments. However, the proposal was not taken forward, and the government said it would not levy any charges since UPI is a ‘digital public good’.

UPI players continue to voice concerns:

The topic and concerns, however, remain live as industry stakeholders, experts and small UPI players continue to voice concerns on how to make UPI sustainable. Considering its growth, digital banking consultants have suggested that introducing fees could ensure UPI’s long-term sustainability. RBI’s Payments Vision 2025 has also suggested a strategic plan to enhance the digital payments ecosystem in the country.

One key advantage of UPI for merchants is the relatively low cost of infrastructure required for acceptance. Unlike card-based payment systems, which often necessitate the installation of expensive point-of-sale (POS) terminals, UPI relies on QR codes, which are more affordable and easier to implement by merchants and enterprises. Experts, however, fear that the no-fee structure might limit UPI platforms’ ability to invest in new features, security measures, and customer acquisition. Despite its convenience, will a transaction fee, however small, be acceptable to average users? As digital payments become a way of life for average users, including householders, street vendors, shopkeepers, and daily wagers.

LocalCircles survey received over 32,000 responses from UPI users located in over 376 districts of the country. 63% respondents were men while 37% respondents were women. 40% of respondents were from tier 1, 26% from tier 2 and 34% respondents were from tier 3, 4 and rural districts.

73% opined there should be no charge on UPI:

Only 25% of UPI users surveyed are willing to bear a transaction fee on payments; 73% will stop using it if a transaction fee is introduced; 23% were willing to bear a transaction fee in 2024. 73% of respondents however stated "there should be no charge on UPI transactions and I will stop using if a charge is introduced.

40% of UPI users surveyed say that they have experienced a transaction fee being levied on their UPI payment once or more in the last 12 months; the Percentage rose slightly from 37% in 2024 to 40% in 2025. Some UPI users have complained on social media about being charged transaction fees.