ICICI Bank has introduced a fee structure for Unified Payments Interface (UPI) transactions processed through payment aggregators (PAs), a move that could significantly impact India’s fintech ecosystem and spark a larger debate around the sustainability of free digital payments. Under the new policy, PAs that maintain escrow accounts with ICICI will be charged 2 paise per Rs 100, capped at Rs 6 per transaction. For those without escrow accounts, the charge doubles to Rs 10 per transaction. However, if the transaction is settled directly into a merchant’s ICICI Bank account, no fee will be levied. This structure is designed to incentivise merchants to bank directly with ICICI, allowing the bank to earn from the float on idle funds.

These charges are being communicated to payment aggregators through official letters from the bank, a report in Business Standard stated. Industry players such as Razorpay, PayU, and Pine Labs—who facilitate UPI, card, and wallet transactions — will now need to reconsider their cost structures.

Why the charges?

UPI has become the backbone of India’s digital payments system, with transaction volumes soaring to over 1,900 crore worth Rs 25 lakh crore in a month. However, this rapid growth has come with a cost. Banks are required to invest heavily in infrastructure, handle backend processing, and pay switching fees for routing UPI transactions—all without charging consumers or merchants due to the government’s “free public good” stance.

Despite the popularity and policy support for keeping UPI transactions free for consumers and small merchants, the question of who bears the cost remains unresolved. Regulatory bodies such as the Reserve Bank of India (RBI) have expressed support for the idea of free payments but acknowledge that financial sustainability must be addressed. RBI Governor Sanjay Malhotra recently stated that someone must eventually bear the cost of operating the system.

Following that sentiment, ICICI’s move appears to reflect a shift in banking strategy—moving from absorbing UPI costs to monetizing transaction services, at least for enterprise and aggregator clients.

Impact on payment aggregators

Payment aggregators are now caught in a tough spot. So far, many have subsidized the cost of UPI transactions using revenues from other services. But as backend charges increase, they may find it harder to shield merchants from these costs. This could lead to pricing changes, renegotiations with merchants, or new strategies for routing and settlement.

Other private banks, including Axis Bank and Yes Bank, have reportedly implemented similar charges. These three—alongside ICICI—are among the top payment service providers in India’s UPI landscape, responsible for a significant share of both payer and payee side transactions.

Industry insiders suggest that the new pricing may have been influenced by regulatory signals. “Banks have invested heavily in the UPI switch and both issuing and acquiring infrastructure. It’s not surprising that they’re looking for revenue models now,” said an executive from a payments company.

Broader implications

The peer-to-merchant (P2M) segment, in particular, is driving UPI volume growth. However, since UPI transactions do not attract a Merchant Discount Rate (MDR), banks and aggregators are currently earning minimal revenue from this surge.

Industry experts see ICICI’s move as the start of a value-based monetization model for UPI services, transitioning from a public-subsidy model to platform-based fees. According to fintech investor Paramdeep Singh, this shift will have wide-reaching implications: “This will reshape escrow strategies, pricing models, and acquisition playbooks for B2B fintechs. My biggest concern is the impact on rural merchants and thin-margin UPI-based credit or BNPL products.”

As competition stiffens and operational costs rise, fintechs will need to adapt quickly, whether by negotiating better deals with banks, innovating on pricing, or improving efficiency in transaction routing. The ability to pivot rapidly could determine who survives in an increasingly cost-conscious environment.