New Delhi: The Indian government is mulling a sizeable shift that may lead to charges on payments on UPI exceeding ₹2,000. It is not decided yet, but already it has initiated a discussion about whether it is a good decision for consumers, merchants, banks, and fintech companies. The government has reportedly permitted a Merchant Discount Rate (MDR) of 0.25% to 0.4% on UPI transactions above ₹2,000 to merchants. Person-to-person UPI transactions should continue to be free, however.
Most consumers will be unaware of the changes if the plan is put in place. It can be expected that the payment of bills up to ₹2,000 would continue in normal course for tea, vegetables, groceries or for a small bill that needs to be paid for. Most likely, money transfers to friends and family will also be free via UPI.
But its effect would be on the large-scale stuff. For instance, the retailer of electronic gadgets, furniture or high-priced clothes may have to collect a minuscule amount in MDR fee from the payer in the event of a UPI payment. The charge is to apply to the business but some shops may be able to pass part of that on to their customers, either through a heightened price on the product, or by the customer paying the fee as an addition to the product. In this case, the people getting large UPI transactions, may pay a tad more indirectly.
There can be mixed emotions with small businesses, too. One was that they would have to pay a further transaction fee for greater transactions in the digital space. However, many may still support UPI as the transaction is still faster, safer and convenient than cash. Bigger retailers are expected to deal with these charges much better than small retailers.
The government is considering this change after banks and payment service providers have long complained that the cost of operating a ‘free’ UPI system is expensive. Despite the need for technology, security and banking infrastructure, currently companies are earning very little from merchant UPI payment. For these reasons, it may be useful to have a small MDR because it would help pay for these costs and further enhance the digital payments ecosystem.
But no need to worry for an average user right now. It is yet to become a rule and is not yet confirmed whether it will go into effect or when. If the change is approved, it is expected to impact mostly payments made by merchant on offline transactions above ₹2000 while inter-personal transactions are likely to remain free of any transaction fee on UPI.
The challenge ahead for the policymakers is to achieve the right balance between affordability for consumers and sustainability for banks and payment companies to continue to grow and develop the country’s payment network.
