Get ready for a potential change when you pay big with UPI. NDTV Profit has confirmed the government is actively considering new fees. Specifically, they plan charges on UPI transactions above Rs. 3,000. This move would significantly alter India’s popular payment landscape. This move aims to boost banks and payment providers financially.
High-level discussions happened just last week. Key players included the PMO and finance departments. Their goal? Assessing a new Merchant Discount Rate (MDR) framework. Therefore, a policy shift appears imminent after years of zero fees
Small UPI payments likely remain free, but larger transactions could soon carry a merchant fee, sources told NDTV. This directly reverses the zero-MDR policy active since January 2020.
Why the Sudden Push for Fees?
Banks and payment firms urgently raised concerns recently. They highlighted skyrocketing costs for handling big digital payments. UPI now dominates retail digital transactions, capturing nearly 80% of the share.
However, the zero-MDR regime offered little incentive. Further investment in crucial infrastructure stalled. The burden grew immense for service providers. They bear higher costs, especially on large transactions.
Person-to-merchant UPI transactions hit a staggering Rs. 60 lakh crore since 2020. This shows deep market trust and penetration. Yet, sustaining this growth requires investment.
Following this, the Payments Council of India proposed a specific solution: a 0.3% MDR for large merchants using UPI. Currently, card payments carry MDR between 0.9% and 2%. RuPay cards, however, remain exempt for now. This new UPI fee would be significantly lower.
How does this affect Banks?
This policy change offers banks a crucial new revenue stream. They could charge MDR based directly on transaction value. Previously, discussions centred on merchant turnover. Charging a percentage fee on high-value UPI payments unlocks major potential. For instance, even a modest 0.3% fee generates substantial income. UPI handles billions of transactions monthly. Millions exceed the Rs. 3,000 threshold.
This revenue directly boosts banks’ non-interest income. Therefore, it strengthens their overall profitability significantly. Banks currently absorb all UPI processing costs themselves.
They cover infrastructure, maintenance, and vital cybersecurity. High-value transactions demand especially robust systems. An MDR finally lets banks recoup these mounting expenses. It reduces their financial burden immediately.
UPI Sustainability
The zero-MDR model severely limited investment incentives. Banks hesitated to fund UPI enhancements. Introducing fees changes this dynamic completely. MDR revenue encourages vital infrastructure spending.
Banks can now justify investments in faster processing. They can enhance security protocols significantly. Furthermore, they can expand merchant networks aggressively.
This investment fuels ecosystem growth long-term. It supports onboarding millions more users. Simultaneously, the fee structure strategically targets large payments. Transactions under Rs. 3,000 stay free.
This protects widespread adoption among smaller users. Banks also gain motivation to acquire more merchants. Acting as acquirers, they provide QR codes and gateways. MDR revenue makes this service more viable financially.
What Happens Next
A final decision is expected within one to two months. Government consultations with stakeholders are ongoing. These include banks, fintech firms, and the NPCI. Implementation would mark a distinct policy evolution.
The focus shifts from pure UPI adoption incentives. Now, ensuring the ecosystem’s long-term health takes priority.
Banks stand to gain considerably from this change. However, some concerns linger. Large merchants might pass fees to consumers. Yet, the proposed 0.3% rate is far lower than card fees. It minimises this risk effectively.
Competition with fintech players also remains key. Banks must ensure competitive service quality. Overall, this fee reintroduction promises greater financial stability. It supports the incredible success story of UPI payments across India.
Written By Fazal Ul Vahab C H
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
