Unified Payments Interface (UPI) continues to revolutionize digital payments in India by offering instant, seamless, and mostly free transactions to users. However, recent developments in 2025 have introduced nuances regarding transaction costs, primarily affecting merchants and payment intermediaries while keeping most personal transactions free of charge.
Key Points on UPI Transaction Costs in 2025:
Personal UPI Transactions Remain Free:
All peer-to-peer (P2P) and peer-to-merchant (P2M) UPI transactions conducted directly between bank accounts are completely free for users, regardless of transaction amount.
Users making payments to friends, family, or merchants via bank-linked UPI face no extra charges, even for high-value transactions up to ₹1 lakh per day, the daily transaction limit as regulated by NPCI.
Charges on Wallet-Based Merchant Payments:
Merchants accepting payments above ₹2,000 through prepaid payment instruments (PPIs) or digital wallets (like PhonePe, Paytm, Amazon Pay) incur an interchange fee of up to 1.1%.
This fee is charged to the merchant’s bank, not the customer, making wallet-based merchant payments the primary category subject to UPI transaction fees.
This interchange fee compensates banks for processing and delivering these transactions through wallet platforms.
New Fees for Payment Aggregators:
From August 1, 2025, banks like ICICI have introduced processing fees for payment aggregators (PAs) such as Google Pay, PhonePe, and others.
Aggregators with escrow accounts at ICICI Bank pay 2 basis points (0.02%) per transaction capped at ₹6, while those without escrow accounts pay 4 basis points capped at ₹10 per transaction.
These charges apply to merchant UPI transactions processed through the aggregators, though merchants receiving settlements directly into their ICICI Bank accounts are exempt.
Axis Bank and Yes Bank have similar fee models.
These fees aim to offset growing infrastructure and operational costs banks face as UPI transaction volumes surge, with UPI crossing over 700 million daily transactions in early August 2025.
No Charges on Small Transactions and Non-Merchant Payments:
Transactions below ₹2,000 involving wallets do not incur interchange fees.
Personal UPI payments, whether through wallets or bank accounts, are free and exempt from charges.
The government and Ministry of Finance have confirmed there is no Merchant Discount Rate (MDR) or direct charges on UPI payments for individual consumers in 2025.
Future Outlook:
While current charges mostly affect merchants and payment aggregators, some experts predict costs may eventually trickle down to merchants or consumers as banks seek sustainable revenue models for UPI.
The system is evolving to balance cost recovery with the government’s goal of promoting digital transactions and financial inclusion.
New rules also include limits on balance checks and enhanced security measures to improve system efficiency.
Summary:
UPI remains a zero-fee payment system for consumers conducting personal transactions across India. However, merchants accepting wallet payments exceeding ₹2,000 pay an interchange fee of up to 1.1%, and payment aggregators now face transaction processing fees from banks like ICICI starting August 2025. These changes reflect efforts to sustain the massive infrastructure supporting UPI’s growth, with minimal impact on everyday consumers. Businesses should be aware of these costs and may consider adjusting their pricing or absorbing fees accordingly as digital payments continue to flourish.
