NPCI will use part of UPI's merchant fee to pay banks for signing up small shops

The National Payments Corporation of India, which runs UPI, has notified a new scheme to spread UPI acceptance among small merchants, and it will pay for it out of the merchant fee that UPI is about to start charging. The UPI Vyapaar Saksham Scheme was set out in a circular dated 11 November 2026 to all UPI members, CNBC-TV18, The Economic Times and Inc42 reported on 12 November. It will run for three years from the date the UPI merchant discount rate, or MDR, takes effect. MDR is a fee charged on the merchant's side of a payment and shared among the banks and apps that process it, and its start date has still not been notified.

The money comes from the payments themselves rather than a government budget. Every issuing bank, acquiring bank, payer payment service provider and UPI app will put 5% of its MDR share into the fund, leaving out MDR from excluded categories such as capital market payments, CNBC-TV18 reports. The scheme is aimed at merchants with annual turnover of up to Rs 40 lakh, with a focus on Tier 3 to Tier 6 towns, the northeastern states, Jammu and Kashmir and Ladakh. Small merchants covered by central schemes such as PM SVANidhi and PM Vishwakarma also qualify. Only UPI payments of Rs 2,000 or less count, and splitting a bigger payment to stay under that line is excluded.

The fund has three parts. Thirty percent goes to signing up new merchants: the acquiring bank, meaning the bank that serves the shop, gets Rs 300 for each physical QR code and Rs 750 for each soundbox, as long as the new merchant makes at least 25 eligible payments in any two months of a quarter and takes in at least Rs 5,000 a month. Half the fund rewards banks that grow eligible payment volumes by at least 5% quarter on quarter, at 0.03% of eligible value plus 50% more in the target regions. The last 20% pays 0.2% on extra value in the target regions compared with the previous quarter.

NPCI expects the scheme to bring 6 million to 10 million new physical QR codes and 0.5 million to 1 million new soundboxes a year, along with 30% to 50% annual growth in payments at existing small merchants, according to CNBC-TV18. Banks will claim every quarter with claims certified by internal and external auditors, NPCI will settle within 30 days, and it will review the scheme every six months. Fraudulent claims lead to disqualification, and a device already funded through another channel, such as NABARD, cannot be claimed again.

Why it matters: this is the first time UPI's coming merchant fee has a named use, and it points that money at the shops in small towns that the fee itself leaves out. What to watch: the scheme's three year clock and its fund both depend on MDR going live, and the government has not yet given a date for that after the post Diwali deadline passed.