UPI: Big news for UPI users. If you use UPI, the government is preparing to change the rules related to UPI soon. Currently, UPI remains free as before. Shopkeepers are also not charging any Merchant Discount Rate (MDR) for accepting UPI payments. This means that if you use UPI daily, nothing has changed for you.
You can easily make payments by scanning a QR code using your mobile number or UPI ID without any additional charges. The government has neither implemented any new charges nor set a date for them. The government’s proposal is merely to amend the law, allowing the government to set regulations if needed in the future.
What is MDR?
MDR is a charge typically paid by merchants to banks and payment service providers for accepting digital payments. Merchants can then choose to cover this cost themselves or add it to the price of goods. This is entirely their commercial decision.
What are the proposed changes by the government?
The government is suggesting revisions to the Payment and Settlement Systems (PSS) Act of 2007. Currently, the law prohibits fees on specific digital payment systems like UPI and RuPay debit cards. Under the proposed amendments, this restriction will not be directly written into the law anymore. Instead, the government will have the authority to issue notifications to specify which digital payment methods will continue to be free and which might be subject to MDR. This indicates that no fees are being imposed at the moment; preparations are being made for potential future actions.
Why was this modification necessary?
The usage of UPI has significantly increased in recent years, with billions of transactions occurring monthly. In July alone, over 23 billion transactions were facilitated through UPI, amounting to around Rs 30 lakh crore. The operational expenses for banks, payment companies, and other entities are rising due to the scale of this system. Since the elimination of MDR in 2020, the government has been offering incentives to these entities. However, a parliamentary committee has highlighted that these incentives are insufficient to cover the actual costs. Hence, the government aims to have the flexibility to introduce new measures if required in the future.
Is the implementation of MDR definite?
The modification in the law does not guarantee the reintroduction of MDR. Even if this amendment is approved by Parliament, a separate notification specifying the types of transactions that may incur charges, the amount, and the timing would need to be issued by the government. Until such an official directive is released, UPI will remain fee-free as it was previously.
Who will be responsible for paying if MDR is enforced?
Should MDR be applied at any future point, it does not signify that customers will have funds deducted from their bank accounts separately.
Can charges be applicable solely to substantial transactions?
Currently, the government has not suggested any such action. Nonetheless, there is talk in the industry that if MDR is reintroduced in the future, small vendors and minor payments might be exempt. Some experts suggest that transactions exceeding Rs 2,000 could be considered, as they are infrequent but make up a significant portion of total payments. However, no official communication has been released by the government regarding this matter.
Customers using UPI are not affected by any changes presently. They can continue making digital payments as usual without any extra fees. The proposed amendment to the law merely grants the government the authority to establish rules if necessary in the future. Until a new notice is issued by the government, UPI will remain completely free, and customers will not be subject to any new charges.