How it works
UPI was built by NPCI (National Payments Corporation of India) and launched in 2016. A bank account is linked to a UPI ID such as name@bank, and apps such as Google Pay, PhonePe, Paytm and BHIM, or a bank's own app, let the customer approve a payment with a UPI PIN. Money moves between banks instantly, at any hour, and a single payment is usually capped at ₹1 lakh, with higher limits for some categories.
Online, a gateway offers UPI in a few ways: an intent flow that opens the customer's UPI app on a phone, a QR code to scan from a desktop screen, or a collect request sent to a UPI ID. UPI Autopay handles subscriptions: the customer approves a mandate once, and later debits of up to ₹15,000 go through automatically after an advance notice.
UPI carried zero MDR (no fee for merchants) from January 2020. Under an NPCI framework that applies from 15 October 2026, most merchants pay 0.4% on payments above ₹2,000, capped at ₹300 a payment, while payments up to ₹2,000, person-to-person transfers and small merchants receiving up to ₹1 lakh a month through QR codes stay free. Some sectors, such as fuel and railways, pay a flat ₹5 instead, and the charge may not be passed on to customers. Gateways add their own platform fee on top, usually about 2%.
UPI pros and cons
Pros
- Instant bank-to-bank payments, around the clock
- Cheap for merchants: no MDR up to ₹2,000 and a capped rate above
- No card number to type, just a PIN in an app the customer already has
- Covers one-off payments, QR codes and subscriptions (Autopay)
- Low risk of unrecognised payments, since customers approve each one in their app
Cons
- Built for rupee payments from Indian bank accounts
- Some payments sit in a pending state before they succeed or reverse
- Gateways still charge their own fee, often about 2%
When to use UPI
Pick it when
- Selling to customers in India, online or at a counter
- Low-value payments, where card fees would bite
- Subscriptions for Indian customers, through UPI Autopay
Skip it when
- Customers are outside India or pay in other currencies
Related terms
More in Payments
Ways to pay