ICICI Bank to Levy UPI Transaction Fees on Payment Aggregators

ICICI Bank will start charging payment aggregators (PAs) for handling UPI transactions from August 1, 2025. PAs with an escrow account at ICICI will incur a 2 basis point fee per transaction, capped at ₹6. Those without an escrow account will pay 4 basis points, capped at ₹10. Transactions settled directly into an ICICI merchant account will remain exempt, as the bank benefits from interest earned on held funds.

The move marks a significant economic shift in the UPI ecosystem, which has so far operated under a zero Merchant Discount Rate (MDR) model for consumers and merchants. While UPI volumes have soared, banks bear rising costs for infrastructure, maintenance, and UPI switch usage—without direct MDR revenue. Charging PAs is seen as a way to offset these operational expenses.

For payment aggregators, the decision presents a choice: absorb the charges and reduce margins or pass them on to merchants. Either way, small businesses could feel the impact, potentially facing higher costs for digital payments. This may indirectly affect consumers through price adjustments.

The RBI has previously signaled that the zero-charge model has limitations, hinting at the need for cost-sharing to sustain UPI infrastructure. ICICI’s move follows similar fee introductions by Yes Bank and Axis Bank, pointing to an emerging industry trend.

Bottom line: While the new structure could strengthen the financial sustainability of UPI systems, it challenges the perception of “free” digital payments. The payments ecosystem must now adapt to a more cost-aware model, balancing operational viability with merchant and consumer affordability.