Direct UPI vs Payment Gateway: Which Should Your Online Store Use?

Meera sells block-print bedsheets from Jaipur. Her average order is ₹1,450 and she ships about 150 a month, roughly ₹2,17,500 in sales. Buyers pay to her UPI QR, send a screenshot, and she checks her bank app before packing. She pays no fee. If she moved to Razorpay at its standard rate, she would pay ₹5,133 a month.

So which should an online store use, direct UPI or a payment gateway? Direct UPI costs nothing in fees but every payment has to be checked by hand, and buyers can only pay by UPI. A gateway such as Razorpay charges 2% plus GST but confirms each payment automatically against the order and adds cards, netbanking and wallets. Direct UPI suits low volumes where you can check every payment yourself. A gateway pays for itself once manual checking starts costing you hours, mistakes or buyers who wanted another way to pay. Many stores run both.

Key takeaways

• As of October 2026, Razorpay's standard fee is 2% per successful domestic transaction, UPI included, plus 18% GST on the fee: an effective 2.36%, or ₹34.22 on a ₹1,450 order.
• Direct UPI has no gateway fee, but nothing tells your store a payment arrived. You check your bank app, match the amount and reference, and confirm the order yourself.
• NPCI has announced a 0.4% merchant discount rate on select merchant UPI payments above ₹2,000, capped at ₹300. It was due on 15 October 2026 and is now deferred until after Diwali. Payments up to ₹2,000 stay free.
• At Meera's numbers, a gateway pays for itself if it brings about 10 more paid orders a month, or saves the mistakes and hours that manual checking costs.
• The common answer is both: a gateway as the main checkout, direct UPI for buyers who prefer it, and COD with limits.

What is the difference between direct UPI and a payment gateway?

With direct UPI, the buyer pays straight into your bank account using your UPI ID or QR code. The money is yours instantly, but the payment happens outside your store. Your store does not know it arrived until you look.

With a payment gateway, the buyer pays inside your checkout. The gateway tells your store the payment succeeded, marks the order paid and settles the money to your bank later, minus its fee.

	Direct UPI (your UPI ID or QR)	Payment gateway (e.g. Razorpay)
Setup	Minutes, with any bank account and UPI app	Account activation with business documents and website checks
Fee per order	₹0 today	2% + 18% GST on the fee (standard Razorpay plan)
Payment confirmation	Manual: you check your bank app	Automatic, matched to the order
Payment methods	UPI only	UPI, cards, netbanking, wallets
When money arrives	Instantly	T+2 working days by default on Razorpay
Refunds	You send the money back from your UPI app	Issued from the gateway or your store dashboard
Payment record	Your bank statement and screenshots	A transaction record per order

Razorpay's settlement docs give the default domestic cycle as T+2 working days from capture. Activation is its own small project; our Razorpay activation checklist covers the documents and website checks.

How much does each one cost?

Payment gateway

Razorpay's pricing page lists a standard platform fee of 2% per successful transaction on domestic instruments, with no setup or annual fee, plus 18% GST on the fee. It states that UPI itself carries zero MDR and that the 2% applies as a platform fee. So UPI paid through Razorpay costs the same 2% as a card.

On Meera's ₹1,450 order:

Line	Calculation	Amount
Razorpay fee	2% × ₹1,450	₹29.00
GST on the fee	18% × ₹29.00	₹5.22
Total per order	2.36% of the order	₹34.22
Per month	150 × ₹34.22	₹5,133

If you are GST-registered, the GST on gateway fees is a business input and can usually be claimed as input tax credit; confirm with your accountant. Our GST guide for online sellers covers when registration applies.

Direct UPI

For now, receiving UPI into your own account costs nothing. That is changing for some merchants. NPCI's FAQ on UPI merchant discount rate, dated 15 September 2026, sets out the framework:

• A 0.4% MDR on person-to-merchant (P2M) UPI payments above ₹2,000, capped at ₹300 per payment from ₹75,000 upward.
• Payments up to ₹2,000 stay free, and so do person-to-person transfers.
• Small merchants under NPCI's P2PM category, receiving up to ₹1 lakh a month through UPI QR into their own account, keep zero MDR. A merchant whose UPI credits exceed ₹1 lakh a month for three consecutive months moves to the P2M category.
• Merchants cannot pass the MDR on to buyers.

What it would mean for Meera: her ₹2,17,500 a month is above the P2PM limit, so after three months she would count as a P2M merchant. Most of her orders are under ₹2,000 and stay free. Say 25 orders a month are ₹2,400 king-size sets. At 0.4%, each pays ₹9.60, or ₹240 a month in total. The same 25 orders through Razorpay cost ₹56.64 each. Even with MDR, direct UPI stays far cheaper on fees.

What does "free" UPI cost in time and mistakes?

The real cost of direct UPI is the checking. For each order Meera has to:

1. Wait for the buyer's screenshot or message.
2. Open her bank app and find a credit of the right amount at the right time.
3. Match the 12-digit UPI reference number on the screenshot to the one in her bank statement.
4. Mark the order as paid and only then pack it.

Call it two minutes an order when it goes smoothly. At 150 orders that is 5 hours a month; at 500 orders it is nearly 17. The bigger risks are the ones that do not go smoothly:

• Fake or edited screenshots. A screenshot proves nothing. Only a credit in your own bank account does.
• Wrong amounts. A buyer pays ₹1,045 instead of ₹1,450, or pays for one item and orders two.
• Payments you cannot match. Two buyers pay ₹1,450 within minutes of each other, and neither sends a screenshot.
• Buyers who never come back. They leave your checkout to open a UPI app and get distracted. No system tells you this happened.

Each slip has a price. If Meera ships a ₹1,450 bedsheet against a payment that never arrived, she loses the product and the shipping, not 2.36% of the order.

When does a payment gateway pay for itself?

Fees and checking time both grow with orders, so the comparison is the same at any volume:

Orders a month (₹1,450 average)	Monthly sales	Razorpay cost incl. GST	Checking time at 2 min/order
30	₹43,500	₹1,026.60	1 hour
150	₹2,17,500	₹5,133.00	5 hours
500	₹7,25,000	₹17,110.00	16.7 hours

At every row the gateway costs about ₹1,027 for each hour of checking it saves. Whether that is worth it depends on what else you would do with the hour, and on two things the table cannot show.

Extra paid orders. Say Meera keeps ₹600 per bedsheet after product cost and shipping. After the ₹34.22 fee, a gateway order leaves ₹565.78. To cover ₹5,133 a month, the gateway has to bring ₹5,133 ÷ ₹565.78 = 9.1, so 10 extra paid orders out of 150. Those come from buyers who wanted to pay by card, buyers who abandoned at the UPI step, and buyers who did not trust sending money to a personal QR.

Mistakes avoided. One shipped order with no payment behind it costs more than a month of fees on dozens of orders.

If you run ads, weight this heavily. A paid click that reaches a checkout where it can pay and be confirmed immediately is worth more than one that has to send you a screenshot.

So which should your store use?

• Under about 30 orders a month, mostly from people who know you: direct UPI is fine if you check every payment in your bank app. Add COD for buyers who will not pay upfront.
• Growing past that, or running ads: make a gateway your main checkout so payments are confirmed against orders without you. Keep direct UPI for regulars who prefer it.
• Average order above ₹2,000 and well over ₹1 lakh a month in UPI: check how the MDR will apply to you once NPCI announces the date. It will still be cheaper than a gateway per order, but it will no longer be zero.
• Selling to buyers outside India: direct UPI will not work for most of them. You need a gateway that takes international cards.

COD sits alongside either. Our cash on delivery guide works through what it costs and how to limit it.

How to run direct UPI safely

• Confirm in your bank app, never from a screenshot. Ship only when the credit is in your account.
• Match amount, time and reference. Ask buyers to send the 12-digit UPI reference and check it against your statement.
• Use a QR in your business name. Buyers trust a payee name that matches your store more than a personal name.
• Set a cut-off. If no payment arrives within a few hours, cancel the order so stock is not held for nobody.
• Keep a refund routine. Refunds go back from your UPI app to the buyer's account. Note the reference on the order for your records.

How this works in Selzix

Stores on Selzix that sell in Indian rupees can connect their own Razorpay account for online payments and manage supported refunds from the Selzix dashboard. They can also offer direct UPI using their own UPI ID or QR, and cash on delivery with order limits and an optional fee. If you prefer, you can connect your own Stripe account instead for cards and wallets. Payments settle to your own gateway or bank account, and Selzix charges no transaction fee on any method. Gateway fees are billed by the gateway.

Be clear on one limit: direct UPI is not automatically verified. Selzix cannot see your bank account, so you review each direct UPI payment and confirm it yourself in Orders, exactly as in the checklist above. If you want payments confirmed without manual checks, use Razorpay. The full payments list is on the features page and the India setup is at selzix.com/in. If you are comparing platforms that add their own fee on top of the gateway, see Selzix vs Shopify.

Frequently asked questions

Does Razorpay charge for UPI payments?

Yes. As of October 2026, Razorpay's standard plan charges a 2% platform fee per successful domestic transaction, UPI included, plus 18% GST on the fee. Razorpay notes that UPI itself has zero MDR; the 2% is its own fee.

Will the new UPI MDR apply to my store?

Only to merchant UPI payments above ₹2,000, at 0.4% capped at ₹300, and only once NPCI announces the start date after Diwali 2026. Payments up to ₹2,000, person-to-person transfers and small P2PM merchants receiving up to ₹1 lakh a month stay at zero.

How do I verify a direct UPI payment?

Check the credit in your own bank app or statement and match the amount, time and 12-digit UPI reference to the order. Do not rely on a screenshot sent by the buyer.

Can I use direct UPI and a payment gateway at the same time?

Yes, many stores offer both, along with COD. The gateway handles buyers who want automatic confirmation or cards, and direct UPI suits regulars who prefer paying from their own app.

---

Want Razorpay, direct UPI and COD in one store with no transaction fee from us? Start a 14-day free trial. No card needed.