Will UPI Payments Incur Charges? Key Details on Proposed Merchant Fees and Consumer Impact
The Lok Sabha has cleared a bill amending the Payment and Settlement Systems Act, 2007, opening the door for the government to authorise banks and payment service providers to levy charges on certain Unified Payments Interface (UPI) and other electronic payment transactions.
What Happened
The legislative amendment removes a previous statutory restriction that prevented banks and payment service providers from collecting a Merchant Discount Rate (MDR) on notified electronic payment modes. Following this legislative change, the government is expected to allow an MDR ranging between 0.25% and 0.4% specifically on business-directed UPI transactions that exceed Rs 2,000.
Finance Minister Nirmala Sitharaman clarified that the proposed Merchant Discount Rate on digital payment transactions applies directly to merchants rather than individual consumers. She noted that these charges would help banks and fintech companies strengthen investments in digital infrastructure and security.
Key Highlights
- Consumer Exemption: Person-to-person (P2P) transfers and direct consumer payments remain free of transaction charges.
- Small Business Protection: Small merchants and neighbourhood kirana stores will not be required to pay MDR charges to accept UPI payments.
- Routine Purchases Unaffected: Everyday transactions, such as purchasing milk, vegetables, and groceries, as well as paying for auto-rickshaw and taxi services, are not expected to face any levy.
- Threshold for Fees: The expected MDR of 0.25% to 0.4% is targeted at payments exceeding Rs 2,000 made to businesses.
- Infrastructure Funding: Ecosystem participants—including banks, payment companies, fintech firms, NPCI, and the RBI—have funded UPI infrastructure, technology, cybersecurity, and fraud prevention for nearly a decade.
Why This Matters
As UPI has expanded into the world’s largest real-time payment network handling billions of transactions monthly, discussions have centred on how to sustainably fund its operational, security, and technological upkeep. Operating a nationwide payments network requires continuous capital for cybersecurity, fraud prevention, compliance, customer support, and round-the-clock availability. Allowing MDR on larger merchant transactions creates a commercial arrangement between commercial merchants and payment service providers without placing a direct cost burden on regular users or small vendors.
What to Watch Next
Official notifications from the government will specify the exact implementation rules, final MDR percentages, and applicable categories for UPI payments exceeding Rs 2,000 made to businesses.
Frequently Asked Questions
Will individual users have to pay fees to make UPI payments?
No. UPI has remained free for consumers since its introduction in 2016, and users can continue to make digital payments without paying transaction charges.
Will small shopkeepers and kirana stores face fees for accepting UPI?
No. Small merchants are not subject to MDR charges for accepting UPI payments under the ecosystem’s framework.
Who currently covers the operational costs of UPI?
Operating costs—including technological development, fraud prevention, cybersecurity, and customer support—are currently borne by ecosystem participants such as banks and payment service providers.
Source: timesofindia.indiatimes.com