India's Banks Do The Least In UPI Payments. They Will Now Earn The Most

By Dev Chandrasekhar

On September 15, the National Payments Corporation of India, the bank-owned body that runs UPI, notified a fee on UPI payments to shops. The merchant discount rate (MDR) begins on October 15, the first charge of any kind on the system that has been free since 2020.

Most of the argument since has been about whether shoppers end up paying, which will not be settled for a year. A simpler question that can be answered now is who collects this fee?

Take a Rs 3,000 payment at a large retailer. The fee is 0.4%, so Rs 12 leaves the shop's account and is divided among four parties under the structure announced alongside the rate.

How The Fee Is Divided

The customer's own bank, which debits the account, takes 40%. The official case for giving it the largest share is that it holds the customer's account, checks the UPI PIN, screens each payment for fraud and deals with complaints and refunds. 

The firm that signed the shop up to accept UPI takes 30%. The app the customer paid with, PhonePe or Google Pay or another, takes 20%. The bank that sits behind that app and connects it to the system takes the last 10%.

Not every payment reaches that point, though. Nothing is charged below Rs 2,000, money sent between people is free at any amount, and a small shop that receives less than Rs 1 lakh a month through UPI pays nothing, even on a Rs 5,000 sale. 

For everyone else, the fee is capped at Rs 300, which is what a Rs 75,000 payment costs – so a Rs 2 lakh payment also costs the shop Rs 300. Payments made by standing instruction, the UPI AutoPay mandates behind monthly subscriptions, SIPs and bills, carry no fee at any amount.

That lets a shop with regular customers, a gym or a coaching class, say, move them onto monthly mandates and stay outside the fee altogether. Railways, telecom, insurance and fuel pay a flat Rs 5 on each payment above Rs 2,000, whatever its size; mutual funds and share broking pay 0.02%, a twentieth of the standard rate.

Add the exclusions together, and the headline rate describes very little. 

Bernstein, a research firm, estimates that once these exemptions are counted, shops will pay about 0.19% on all the money they receive through UPI, less than half the advertised 0.4. 

That is because only about half of that money will pay the full rate. The rest comes in payments under Rs 2,000, at small shops, by standing instruction or in the flat-fee categories, and pays nothing or close to nothing. Half of 0.4 is roughly 0.2. What follows is about that smaller sum, and about who ends up holding it.

For someone paying by UPI, the screen will look the same and show no charge. The difference is that each payment of more than Rs 2,000 to a larger shop now costs that shop money. Most of it goes to banks rather than to the app the customer used, and over time it can find its way into prices.

How The Banks Get The Most 

Two of the four shares, the 40% for the customer's bank and the 10% for the bank behind the app, can only go to a bank. So the rule itself hands banks half of every fee. 

The open question is the shop's 30%. A shop can be signed up by a bank or by a payment firm such as Razorpay or Cashfree, and whichever does it takes that share. 

Depending on how the 30% is divided, banks end up with 60 to 70% of the total and the payment firms with about 15%. Banks and apps also have private revenue-sharing deals that are not disclosed, so the exact final split cannot be seen from outside. 

Brokerages put the annual pool at Rs 15,000 crore to Rs 20,600 crore. 

JPMorgan puts about Rs 11,700 crore with the customer's bank and the shop's, equal to 2.1% of what India's listed banks earned last year, and a further Rs 1,700 crore with the banks behind the apps. Because the fee starts in mid-October, most of it will show in the year to March 2028 rather than this one.

For shops, the change that matters beyond the fee itself is the Rs 1 lakh line. A small shop that takes in more than Rs 1 lakh a month through UPI for three months running is moved into the paying category, and from then on every sale above Rs 2,000 carries the fee. 

UPI remains the cheapest way for a shop to take a digital payment, since debit card fees run up to 0.9% and credit cards 1.5 to 2.5%. But in a LocalCircles survey, 41% of merchants said they would not bear any fee at all, which points to more cash, or a quiet surcharge, on large bills.

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$700 million

That is how much India's passenger vehicle exports were worth in the first half of 2026, as electric mobility is gaining ground, with annual electric vehicle (EV) sales of around 2.5 million units in FY2026, according to a new report by CBRE.

The EV market is projected to grow from $3.7 billion in 2025 to $191 billion by 2034.

The Lead: Automakers such as Tata Motors, Mahindra and Hyundai are expanding their EV line-ups. Lower running costs are a key draw as home-charged EVs cost Rs 1-2 per km, against Rs 4-10 for petrol and diesel vehicles. Rising fuel prices also add to the appeal. The Core earlier reported how EVs are gaining ground as Indian buyers chase lower running cost.

Another driving factor is that major automakers have raised monthly production capacity by 15-20%, some by up to 30%.

Setup: Electric passenger vehicle sales rose about 64% year-on-year in January-March 2026. Meanwhile, EV penetration reached about 6.5% in Q1 FY2027, up from about 4.6% a year earlier.

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Adani Group will invest Rs 1 trillion ($10.43 billion) in West Bengal by 2035 across sectors including power generation, logistics, data centres, healthcare and clean energy, Chairman Gautam Adani said on Thursday, Reuters reported.

Fast Facts: Speaking at the foundation stone-laying ceremony of a 2,000-bed hospital in New Town near Kolkata, Adani said the group would invest Rs 40 billion in the hospital, a medical college and a research facility, which is expected to create more than 10,000 jobs across the state's healthcare ecosystem.

The investment will also support the development of roads, bridges and ropeways across the eastern state.

The Shift: The announcement is significant for West Bengal, which has historically lagged behind western and southern states in attracting large-scale private investment.

For Adani Group, the investment signals a push to diversify beyond its core infrastructure businesses — ports, logistics and power — into data centres, healthcare and clean energy.

West Bengal, with its strategic location bordering Bangladesh, Bhutan, Nepal and China, also offers Adani a gateway to expand its logistics and trade corridor businesses into South and Southeast Asia.

Bankers Fight For Five-Day Week

Employees of public-sector banks and regional rural banks will go on a three-day nationwide strike from September 28 to 30, after the United Forum of Bank Unions (UFBU) failed to reach an agreement with the government and bank managements. 

The Lead: The unions are demanding a five-day banking week, with all Saturdays declared holidays. They say the proposal was agreed as part of the March 2024 wage settlement but has not yet been implemented. The government, however, has urged unions to call off the strike, saying discussions on the five-day week are still underway and that the dispute over performance-linked incentives has been put on hold. 

What This Means Going Forward: With September 26 and 27 falling on a weekend, the strike could disrupt branch services for several days. The government has asked public-sector banks and RRBs to keep branches open on Sunday, September 27.

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Volkswagen's (VW) bid to revive its India business faces a new hurdle, with JSW Group refusing to take on a $1.4 billion tax liability tied to the carmaker. It is a sticking point that could derail their planned joint venture in India, Bloomberg reported. The companies have reached a preliminary agreement on structure and commercial terms, but valuation remains unresolved as financial due diligence begins.

JSW, seeking a majority stake in Skoda Auto Volkswagen India, insists any liability should stay with VW and has signalled it would not proceed otherwise.

Fast Facts: The partnership comes as Volkswagen has struggled to grow in India, a key market in its plan to expand beyond Europe. The companies hope to sign a final deal by December. But talks have also slowed since Skoda CEO Klaus Zellmer left to lead Volvo Car earlier this month.

Context: Indian officials claim Volkswagen wrongly described imported car kits to pay less duty from 2012 to 2024. Volkswagen denies this and is fighting the tax claim in a Mumbai court, with no ruling expected this year.

AI Layoffs Backfire?

Amazon is reaching out to former employees, including some it previously laid off, as it looks to fill roles across its cloud and AI businesses.

The Turning Point: Recruiter emails show Amazon’s AI organisation invited former AI and machine-learning workers to discuss new opportunities through a “Boomerang Reengagement Initiative”. In another case, an AWS recruiter offered a former employee a shortened interview process and asked whether Amazon’s return-to-office policy had influenced their decision to leave.

Pivot: Amazon says rehiring former employees is a “normal, longstanding” company-wide practice, rather than a new programme focused on laid-off workers or AI. The outreach comes after Amazon cut more than 30,000 jobs over the past year, even as the race for AI talent intensifies.

India Cuts Edible Oil Import Taxes

India has halved import taxes on crude palm and soybean oils to 5% from 10% to help ease cooking-oil prices ahead of the festive season, Bloomberg reported.

Context: The Finance Ministry also scrapped the tax on unrefined sunflower oil and lowered levies on refined edible oils.

India imports about 60% of its domestic edible-oil needs, making local prices sensitive to global vegetable-oil prices.

The government said the move is aimed at ensuring adequate availability across the country during the upcoming festival months. India’s festive season starts in September and peaks around Diwali in November, when demand for cooking oil rises as households buy more sweets, fried food and other festive items.

Forecast: The duty cut could make sunflower oil more competitive in India, according to Sudhakar Desai, president of the Indian Vegetable Oil Producers’ Association, reported by Bloomberg.

Palm oil prices rose as much as 0.9% in Kuala Lumpur after the announcement, ending a four-day decline. However, further gains could be limited as Malaysia’s palm oil production is higher than expected and stocks are building, according to Anilkumar Bagani of Mumbai-based Sunvin Group, Bloomberg reported.

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Liquidity Stretched Markets Take A Dive On Bank Bad News

On Episode 989 of The Core Report, financial journalist Govindraj Ethiraj talks to G Chokkalingam, Founder at Equinomics Research as well as Vivek Merchant, Director at Swan Defence and Heavy Industries Limited (SDHI) from our extended Special Edition interview.

• Liquidity Stretched Markets Take A Dive On Bank Bad News

• US President Donald Trump Does An Airport Greeting For Chinese President Xi Jinping

• Why The Indian Markets Crashed On Thursday

• How India’s Shipbuilders Are Scouring The Globe For Orders And Winning Them Too

• The US Is Investing $10.3 Trillion In Ai And Data Centers In The Next 6 Years, The Largest Capex In History