India has finally put a price on larger transactions on its ubiquitous digital payments network, ending years of free processing for merchants as authorities seek to make a system used for billions of payments each month financially self-sustaining. The country’s Unified Payments Interface (UPI) will impose a 0.4% merchant fee on certain payments above ₹2,000 (about $21) from October 15, the National Payments Corporation of India, which operates the network, said on Tuesday. Consumers will continue to use the service for free, NPCI said.
Credit card merchant fees typically range from 1.5% to 2.5% per transaction, while debit card fees are capped at 0.9%, according to an FAQ (PDF) released by NPCI. UPI’s merchant fee is capped at ₹300 (about $3) for transactions of ₹75,000 (around $783) or more, while payments of ₹2,000 or less will remain free for merchants. Small merchants receiving up to ₹100,000 (about $1,041) a month through UPI will also be exempt from the charges.
The move marks a major shift for a payments system that has been free for merchants to accept since 2020. It has been long anticipated by the payments industry, which has argued that the zero-fee model made it difficult to cover the growing cost of operating the network. In August, New Delhi laid the groundwork for the shift when it amended India’s payments law to allow merchant fees on some UPI transactions.
A notification issued on Monday specified that banks cannot levy charges on UPI payments of up to ₹2,000, clearing the way for fees on larger transactions. UPI has emerged as the spine of India’s digital payments economy, processing 24.51 billion transactions worth ₹29.9 trillion (about $312 billion) in August alone, per the recent data by NPCI. Its ubiquity over the last few years has made scanning a QR code one of the most common ways to pay in India.
India scrapped merchant fees on UPI payments in January 2020 to boost adoption. The Indian government has since subsidized banks and payment firms for processing some of those transactions. However, authorities have argued for the last few months that the cost of operating UPI at such a vast scale makes the current model unsustainable.
Industry estimates, per NPCI, put the annual cost of running the network, including server capacity, fraud prevention and technical support, at about ₹200 billion ($2.1 billion). The newly announced merchant fees, NPCI said, will be distributed among participants in the UPI ecosystem and used to fund investments in infrastructure, cybersecurity, fraud prevention, and customer service. NPCI did not respond to questions about how it arrived at the ₹200 billion annual cost estimate, how much revenue it expects the new fees to generate, or how that revenue will be distributed across the UPI ecosystem.
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