Google Pay, PhonePe, Paytm Alert: Nowadays, UPI is being widely used for everything from vegetable carts and grocery stores to malls, gold purchases, and online shopping. Customers are using UPI apps like PhonePe, Google Pay, and Paytm for payments of all sizes. These apps have made making payments incredibly convenient for people.
Amidst this, significant news has emerged for UPI users: the Modi government has taken a step towards levying charges on merchants for its popular Unified Payments Interface (UPI) system. This possibility gained momentum after proposed amendments to payment laws were tabled in Parliament on Tuesday, August 4. Although the charge would apply to merchants rather than customers, the change could still impact digital payments.
Who will have to pay the extra charge?
According to available information, an MDR (Merchant Discount Rate) could be levied on transactions exceeding a certain amount. Additionally, the fee might be determined based on a merchant’s annual turnover. Sources indicate that one proposal suggests charging only large merchants, while UPI payments would remain free for consumers and small businesses.
What could the charge be?
According to government sources, a proposal suggests levying an MDR of 0.3% to 0.5% on transactions exceeding ₹2,000 for merchants with an annual turnover of over ₹1.5 crore. A Jefferies report notes that while transactions above ₹2,000 account for only 4% of merchant transactions, they represent approximately 67% of total transaction value.
Amendment Bill tabled
Finance Minister Nirmala Sitharaman has tabled a bill in Parliament to amend the Payment and Settlement Systems Act. Industry sources state that this amendment will establish the legal framework for applying the Merchant Discount Rate (MDR) to digital payments.
However, the exact fee amount and the specific transactions to which it will apply have not yet been determined. The Ministry of Finance, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI) have not yet commented on the matter.
Why are curbs being considered for free UPI?
According to Reuters, industry officials have long maintained that sustaining growth in digital payments is becoming difficult because payment companies do not earn any fees on UPI transactions. This limits their capacity to invest.
What is MDR?
MDR is the fee that merchants must pay to banks and payment service providers for processing digital transactions. Credit card transactions typically incur an MDR of around 1.5%, while debit card transactions attract a fee of up to 0.9%; however, no fee is charged on UPI transactions.