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Government Paves Way for UPI Merchant Payment Fees Above Rs 2,000
Confirmed
In Short: The Indian government has amended the Payment and Settlement Systems Act to allow for a Merchant Discount Rate (MDR) fee on UPI and RuPay debit card payments above Rs 2,000.
The Indian government has amended the Payment and Settlement Systems Act to allow for a Merchant Discount Rate (MDR) fee on UPI and RuPay debit card payments above Rs 2,000, according to reports. This move is aimed at ensuring the long-term sustainability of UPI and addressing the rising costs of securing the payments network, particularly with the advent of new cybersecurity risks from artificial intelligence (AI).
According to a LocalCircles poll of more than 20,000 people, only 12% would continue using UPI if a fee is levied on payments of more than Rs 3,000 at large merchants. This suggests that the proposed fee could significantly impact UPI usage, especially among consumers who frequently make high-value transactions.
The amendment, which was made in August, has generated debate, with some interpreting it as a move to impose charges on ordinary users. However, the Ministry of Finance has clarified that the MDR will only apply to a 'limited set' of merchant transactions above a specified threshold and at a nominal rate. The government has been subsidizing payments of up to Rs 2,000 made to small merchants through its 'Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)'.
In the absence of MDR, the government has been subsidizing payments of up to Rs 2,000 made to small merchants. However, the Ministry of Finance’s Department of Financial Services told the Standing Committee on Finance earlier this year that the payments industry was incurring an annual cost of Rs 20,700 crore for person-to-merchant transactions. This cost is expected to rise with the integration of AI systems, which add a new layer of risk to fraud prevention and cybersecurity.
What's confirmed
- According to reports, an MDR of around 0.4% may be levied on high-value person-to-merchant UPI payments.
What's still developing
- “No bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment specified in paragraph above,” the government notification said, specifying RuPay debit cards and UPI transactions of up to Rs 2,000.
- However, these transactions accounted for around two-thirds of the total value of UPI payments.