New UPI Rules: ICICI Bank to Start Charging Users from August 1

India’s digital payment space is set to experience a notable shift as ICICI Bank, one of the country’s leading private banks, prepares to implement fees on Unified Payments Interface (UPI) transactions routed through Payment Aggregators (PAs). This change, effective from August 1, 2025, mirrors similar practices already established by Yes Bank and Axis Bank, signaling a growing trend among private lenders to recover rising backend costs.

While UPI has revolutionized peer-to-peer and merchant payments with its speed and zero-cost structure for end users, maintaining this infrastructure has come at a growing expense to banks. Despite the zero Merchant Discount Rate (MDR) mandate that ensures UPI remains free for both consumers and merchants, banks continue to bear expenses related to technology upkeep, cybersecurity, transaction processing, and integration. The National Payments Corporation of India (NPCI) also levies a switch fee on banks, and in some cases, banks are now choosing to pass this cost on to payment intermediaries.

Fee Structure for Payment Aggregators

Under the new fee structure, ICICI Bank will apply different charges based on the payment aggregator’s banking relationship with the bank:

For PAs maintaining an escrow account with ICICI Bank, a fee of 2 basis points (0.02%) per transaction will be levied. However, this charge will be capped at ₹6 per transaction to limit the financial burden on high-value payments.

For PAs that do not maintain an escrow account with ICICI Bank, a higher fee of 4 basis points (0.04%) per transaction will apply, with a maximum cap of ₹10 per transaction.

To illustrate, a UPI transaction of ₹10,000 routed through a PA with an ICICI Bank escrow account would attract a fee of ₹2. For the same transaction routed through a PA without an escrow account, the fee would be ₹4, both within the prescribed caps.

Applicability and Exemptions

These charges are exclusively applicable to transactions processed via payment aggregators and do not affect those that are settled directly into a merchant’s ICICI Bank account. Merchants who maintain their business accounts with ICICI Bank will not be subject to these charges on incoming UPI payments.

Who Are Payment Aggregators?

Payment Aggregators are third-party platforms that help online and offline merchants accept digital payments. Companies such as PhonePe, Paytm, and Razorpay are among the most widely used PAs in India. These platforms play a critical role in bridging the gap between customers and merchants by facilitating UPI and other digital transactions. The new charges will specifically impact the backend processing costs of these aggregators, particularly when they do not have direct settlement arrangements with ICICI Bank.

The move is part of a broader industry shift aimed at balancing the economics of digital payments. With transaction volumes soaring, banks are finding it increasingly difficult to sustain the infrastructure that powers real-time digital transfers without any revenue inflow from these services. The introduction of such fees helps banks offset the backend costs of scale, security, and service uptime.

ICICI Bank is the third major private bank to adopt this model, following Yes Bank and Axis Bank, both of which began charging PAs around 8 to 10 months ago. The coordinated nature of these changes suggests a sector-wide reassessment of how UPI costs are distributed across stakeholders.

For now, UPI remains completely free for individual users and merchants, and the current zero-MDR framework remains unchanged. However, if more banks follow this path and payment aggregators choose to pass on the fees, it could eventually influence how merchants structure their pricing or how platforms offer UPI services.

ICICI Bank’s move has reignited the conversation around the true cost of free digital payments, especially in a market where volumes are growing exponentially but margins remain razor-thin for infrastructure providers. As these policies evolve, industry observers will be watching closely to see whether such costs start to ripple downstream to merchants—or even consumers—over time.