- By Alex David
- Wed, 06 Aug 2025 11:30 PM (IST)
- Source:JND
UPI is FREE, at least for now. We can say so. On 1 August, several sources reported that ICICI Bank has started taking charges from Payment Aggregators (PAs) for processing UPI transactions. However, it is not officially confirmed via public announcement; some internal sources confirmed it to multiple media outlets. This can be a big move from banks, marking a quake in India’s digital payment era. For so long, the UPI transactions have remained free for users and merchants.
However, the point to note here is that these new charges are only applicable to Payment aggregators (PAs) such as Google Pay, PhonePe, Paytm, etc., at least for now. But this change might be the beginning of the end for free UPI payments. Let me explain how in this article.
ICICI Bank’s New Fee Structure for PAs
According to internal communication accessed by ET Wealth:
- PAs with escrow accounts at ICICI Bank will be charged:
- 2 basis points (bps) per transaction
- Capped at ₹6 per transaction
- PAs without ICICI escrow accounts will pay:
- 4 bps per transaction
- Capped at ₹10 per transaction
No charges will be applied if the PA routes transactions through a merchant’s ICICI account directly.
In contrast, other private banks like Axis Bank already charge between 6–9 bps for UPI processing, according to sources.
Why Are These Charges Being Imposed?
While users and merchants currently don’t pay for UPI transactions due to the government's zero-MDR (merchant discount rate) policy, banks still incur infrastructure and processing costs. These include:
Cost Element | Description |
Infrastructure Maintenance | UPI servers, uptime, fraud detection |
NPCI Switch Fee | 0.02% per transaction |
Operational & Reconciliation Costs | Backend processing, reporting |
ICICI’s move is an attempt to recover some of these costs by passing them on to intermediaries like PAs.
Who Are Payment Aggregators?
The payment aggregators are the mediators between customers and merchants. They act as the connection between them to allow businesses to accept payments in various digital forms, such as UPI, cards, and net banking, without needing any separate integrations for all.
According to the RBI, as of July 16, 2025:
- 8 PAs are fully authorised
- 4 more are awaiting final approvals
- 9 have in-principle approval for new operations
- 17 others are under review
What the RBI and Experts Are Saying
RBI Governor Sanjay Malhotra recently warned that free UPI isn't sustainable forever. At a Mumbai event, he stated, “Costs will have to be paid. Someone will have to bear the cost.” This adds weight to the possibility of fees slowly trickling down to users in the future.
Experts, however, say there’s no need for immediate concern. Krishna Kumar, a digital payments expert, said banks currently have enough financial room to absorb these costs. “There are also risks of consumer backlash or return to cash if charges are introduced too soon,” he said.
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How Are Payment Aggregators Responding?
Most major PAs are staying tight-lipped for now:
- Cashfree Payments: Declined to comment
- RazorPay, PayU, MobiKwik: Acknowledged the development but didn’t provide details
Rahul Jain of NTT DATA Payment Services confirmed that the communication has gone out primarily to PAs integrated with ICICI. He also noted that other banks are already levying similar charges, especially in gaming and high-risk transaction segments.
What’s Next?
There’s no official word yet on whether ICICI’s move will trigger a wider trend. But several public and private sector banks are reportedly evaluating similar fee structures. The growing cost of supporting UPI infrastructure and the push for long-term financial sustainability may force more banks to follow suit.
Final Thoughts
It is an important decision by ICICI Bank that can be a turning point for India’s digital payment structure. However, for now, the consumers won’t feel the impact immediately. There are chances that free UPI may not remain free for a long time, as it won’t be sustainable enough. As banks rethink their revenue models, this could be an opening gate for a bigger shift that eventually affects everyone using UPI ecosystem.