In a significant development in India’s digital payments ecosystem, ICICI Bank has announced that it will begin charging payment aggregators (PAs) such as Google Pay, PhonePe, Mobikwik, and Razorpay for Unified Payments Interface (UPI) transactions beginning August 1, 2025.
This move is expected to reshape the operational and cost dynamics of UPI transactions for merchants and possibly impact end users in the long run. This article will explore the full implications of ICICI Bank’s decision including how the charges work, who pays them, and how it may affect India’s frictionless digital payment landscape.
Summary Table
Key Detail |
Description |
|---|---|
Effective Date |
August 1, 2025 |
Bank Imposing Charges |
ICICI Bank |
Entities Affected |
Google Pay, PhonePe, Mobikwik, Razorpay (and other PAs) |
Fee Structure |
2 bps (₹6 cap) for PAs with escrow; 4 bps (₹10 cap) for PAs without escrow |
Exemption |
No charge if UPI is settled directly into ICICI merchant account |
Rationale |
Cost recovery for UPI infrastructure and switch maintenance |
Who Might Ultimately Pay |
Merchants (via passed-on costs), possibly consumers |
Official Website |
What Has ICICI Bank Announced?
According to a Business Standard report, ICICI Bank has formally notified multiple payment aggregators (PAs) about its intention to levy charges on UPI transactions they facilitate on merchant platforms. The new structure will come into effect from August 1, 2025.
The fee will apply only to PAs, not to customers or merchants directly—at least not initially. However, depending on the operational structure of each PA, the costs could be passed down the line.
Understanding Payment Aggregators and Their Role in UPI
Payment aggregators (PAs) are third-party platforms that facilitate digital transactions between merchants and banks. They:
- Pool customer funds from multiple payment modes (including UPI),
- Temporarily store them in an escrow account, and
- Later settle the amount with the merchant’s designated bank account.
Popular PAs like Google Pay, PhonePe, Razorpay, and Mobikwik play a vital role in the functioning of UPI-based payments on e-commerce and retail platforms.
The Fee Structure in Detail
According to reports, ICICI Bank will impose charges based on whether or not a payment aggregator has an escrow account with the bank:
1. With Escrow Account at ICICI Bank
- Fee: 2 basis points (bps) per UPI transaction
- Cap: ₹6 per transaction
2. Without Escrow Account at ICICI Bank
- Fee: 4 basis points (bps) per UPI transaction
- Cap: ₹10 per transaction
3. No Fee Scenario
- Condition: If the UPI transaction is directly settled into a merchant account maintained at ICICI Bank, the bank will not charge any fees.
This incentivizes merchants to maintain accounts with ICICI Bank, providing the bank with increased float and relationship banking opportunities.
Why Is ICICI Bank Introducing These Charges?
The introduction of fees reflects mounting infrastructure costs for banks supporting UPI:
- UPI infrastructure is costly to maintain, involving server upkeep, fraud monitoring, and compliance systems.
- Banks pay charges to NPCI (National Payments Corporation of India) for using the UPI switch.
- Yet, banks earn zero revenue from UPI transactions because of the zero MDR (merchant discount rate) policy enforced by the government since January 2020.
An executive at a leading payments company commented:
“Banks have invested heavily in the technology stack for UPI, including acquiring and issuing systems. Given that they don’t earn MDR from merchants or users, charging PAs is seen as a practical step.”
Are Other Banks Charging Too?
Yes. ICICI Bank is not alone in this initiative. Yes Bank and Axis Bank also charge PAs for handling UPI transactions. These three—ICICI, Yes Bank, and Axis Bank—are among the top UPI facilitator banks on both payer and payee sides.
What Does This Mean for Merchants?
While ICICI Bank’s charges are aimed at payment aggregators, these intermediaries may pass on the cost to merchants in the following ways:
- Platform Fees: Increase in per-transaction costs
- Convenience Charges: Adjustments in service or handling fees
- Negotiation-Based Pricing: Higher rates for low-volume merchants, better terms for high-volume players
A PA executive explained:
“PAs will either absorb the cost or pass it along to merchants, depending on the size and nature of the merchant relationship.”
In essence, merchants could experience increased transaction charges over time, depending on their chosen PA and banking arrangements.
Will Customers Have to Pay?
As of now, end customers will not be charged directly for UPI transactions. UPI continues to remain free for peer-to-peer (P2P) and peer-to-merchant (P2M) transactions.
However, in cases where merchants pass on additional fees or surcharges, some of that cost could indirectly be transferred to the consumer.
The Role of the Escrow Account
An escrow account is a neutral bank account where PAs temporarily hold customer payments before settling with the merchant.
- If this account is with ICICI Bank, the lower charge of 2 bps applies.
- If it is with another bank, the higher charge of 4 bps applies.
- If funds are settled directly to an ICICI merchant account, no fee is applied.
This structure appears to be strategically designed to encourage more PAs and merchants to keep their accounts with ICICI Bank.
Reactions from the Industry
Many in the payments industry see this move as inevitable given the UPI ecosystem’s growth and the lack of direct monetization for banks.
Key Concerns Raised:
- It could impact small businesses that rely on UPI for affordable digital transactions.
- May lead to fragmentation of the UPI ecosystem, with some PAs revisiting banking partnerships.
- Raises questions about future charges if other banks follow suit more aggressively.
Frequently Asked Questions (FAQs)
1. Will UPI transactions remain free for customers?
Yes, customers will not be charged directly. The new fee structure is applicable only to payment aggregators.
2. When will these charges take effect?
From August 1, 2025.
3. How much is ICICI Bank charging PAs?
- 2 bps (₹6 cap) for PAs with an escrow account at ICICI Bank
- 4 bps (₹10 cap) for PAs without such an account
4. Why is ICICI charging now?
Due to increasing costs of maintaining UPI infrastructure and lack of direct revenue from UPI transactions.
5. Could merchants pass the cost to customers?
Yes, over time, merchants might include these operational costs in the pricing of their goods or services.
6. Are other banks also charging?
Yes, Axis Bank and Yes Bank are already levying fees on UPI transactions from PAs.
Final Thoughts: The Start of UPI Monetization?
ICICI Bank’s move to charge payment aggregators signals the beginning of a monetization trend in India’s UPI ecosystem. While UPI has long been celebrated for its zero-cost model, the sustainability of this approach is now under scrutiny.
As digital payments continue to surge, banks are seeking avenues to recover infrastructure costs. For businesses and consumers alike, understanding these evolving dynamics will be key to adapting to the next phase of India’s digital payment revolution.
For official updates and details, visit: https://www.icicibank.com
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