ICICI Bank, one of India's leading private sector lenders, has announced it will implement a fee structure for all UPI transactions processed by payment aggregators (PAs) starting August 1, 2025. This significant shift aims to recoup transaction infrastructure costs borne by the bank, aligning with a growing trend among Indian banks.
From August 1, 2025, payment aggregators using ICICI Bank to acquire UPI transactions will be required to pay a transaction fee. Previously, digital payments through UPI were effectively free for payment aggregators, as banks absorbed all infrastructure and processing costs. This fee will apply only to PAs and not to individual bank customers making peer-to-peer or business transactions directly.
While the Indian government has mandated a zero Merchant Discount Rate (MDR) on UPI transactions, making them free for end-customers, banks still incur infrastructure and operational costs.
The National Payments Corporation of India (NPCI), which operates UPI, charges banks a switch fee per transaction. ICICI Bank, like some of its peers, is now passing a portion of this cost on to payment aggregators, who are key intermediaries in facilitating digital payments for merchants and online platforms.
The digital payments ecosystem in India has witnessed immense growth, especially through UPI. Payment aggregators act as crucial bridges between merchants and banks, enabling seamless digital collections. However, with escalating transaction volumes and infrastructure costs, banks have grown increasingly concerned about the sustainability of providing free digital payment services.
Merchants working with payment aggregators may face higher service fees as PAs could eventually transfer some of these costs. Direct settlements into ICICI Bank merchant accounts will remain unaffected, providing a potential cost-saving route for eligible businesses.
UPI transactions directly between customers and merchants via ICICI Bank accounts remain free. The customer experience and transaction flow should remain largely unchanged, as fees are applied to intermediaries, not end-users.