UPI Fee Shift Set to Strengthen PhonePe, Google Pay Dominance

India’s decision to introduce a merchant fee on certain UPI transactions could significantly boost revenue for major payment apps such as Walmart-backed PhonePe and Google Pay. Starting October 15, a 0.4% merchant discount rate will apply to UPI transactions above ₹2,000. Bernstein estimates the move could generate up to $1.1 billion in annual revenue for payment apps by March 2028, with PhonePe and Google Pay potentially accounting for around $900 million based on their current market share.

The additional revenue could encourage the dominant players to expand their services into rural India, where smaller transaction sizes have previously made expansion less commercially attractive. Smaller rivals, meanwhile, are expected to focus on higher-value payments such as ticket bookings, utility bills and business transactions, while expanding credit offerings. The shift could also renew regulatory concerns over concentration, with PhonePe and Google Pay together handling about 80% of UPI payment values last month.

The new fee has also raised concerns that merchants could indirectly pass costs on to consumers, although regulators prohibit explicitly charging customers for the fee. Several retailers and industry analysts told Reuters that a major shift back to cash is unlikely because consumers have become highly accustomed to UPI. The change marks a significant transition for a payment system that has operated largely without transaction fees for six years.

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