UPI's New Merchant Fee and Phone Number Masking: What Actually Changed

UPI in India changed twice this year in ways that actually touch daily life: since 4 September 2026, apps no longer show your full phone number to the person you are paying, and from 15 October 2026, merchants will pay a 0.4 percent fee on UPI payments above Rs 2,000. Neither change costs an ordinary shopper anything extra, but both are worth understanding before you hear a garbled version of them from a shopkeeper or a WhatsApp forward.

• What is the new UPI merchant fee, and who actually pays it?
• How does the new phone number masking work?
• Why did NPCI make these changes now?
• What does this mean for Kochi's small shops and street stalls?

What is the new UPI merchant fee, and who actually pays it?

The zero-charge floor itself comes from a Ministry of Finance notification on 14 September 2026, which protects every UPI payment up to Rs 2,000 and every person-to-person transfer of any size from any fee. NPCI's UPI Steering Committee then set the mechanics: from 15 October 2026, a Merchant Discount Rate of 0.4 percent applies to person-to-merchant UPI payments above that Rs 2,000 line, capped at Rs 300 per transaction, so a Rs 75,000 payment and a Rs 1 lakh payment cost the merchant the same Rs 300. A handful of thin-margin categories, among them railways, telecom, insurance, fuel and agricultural inputs, get a flat Rs 5 charge instead of the percentage rate. Industry estimates, including one voiced publicly by PhonePe's CEO, put the share of merchant UPI transactions that stay under Rs 2,000, and so untouched by any of this, at around 96 percent.

Detail	Rule
Effective date	15 October 2026
Rate	0.4% on person-to-merchant payments above Rs 2,000
Cap	Rs 300 per transaction
Who pays	The merchant, not the customer
P2P transfers	Remain free at any amount
Thin-margin sectors	Flat Rs 5 instead of 0.4% (railways, telecom, insurance, fuel, agri inputs)

How does the new phone number masking work?

Since 4 September 2026, UPI apps and banks have been required to stop showing a payer's or payee's full mobile number on screen. Only the last four digits stay visible; the rest is masked, and the rule applies whether you are sending money, receiving it, or scanning a QR code, so a shopkeeper checking who just paid them no longer sees a stranger's complete phone number. Account numbers and UPI IDs get the same treatment. NPCI has also pushed apps to offer, and ideally default to, a UPI ID that is not built from your phone number at all.

Why did NPCI make these changes now?

The masking rule followed a wave of complaints, women users in particular, about being contacted or tracked down after their number was visible to a stranger during a routine payment. The merchant fee is a different story: UPI has been free to use since it launched, and someone eventually has to fund the payment infrastructure banks and NPCI run behind it. Charging a small, capped fee only on larger merchant transactions, while keeping P2P transfers and small payments free, is the compromise the steering committee landed on rather than a flat fee on every transaction, which would have hit every tea stall and grocery run in the country.

What does this mean for Kochi's small shops and street stalls?

For most vendors around the city, from a street food cart to a toddy shop running a QR code by the till, day-to-day transactions sit comfortably under the Rs 2,000 threshold, so the new fee changes nothing for them in practice. It is the shops doing bigger-ticket business, electronics, furniture, gold, that will see the 0.4 percent show up as a real, if capped, cost on higher-value UPI sales. The privacy change is the one every shopper will notice sooner: if a stranger's number used to flash on your screen after a payment, it will not anymore, which matters most for anyone who has ever felt uneasy about who could see their contact details after a transaction gone slightly wrong, the same unease behind our guide to reporting cyber fraud in Ernakulam. For more on staying safe with digital payments and scams, see our wider Tech and AI coverage.