The National Payments Corporation of India, which runs the country’s UPI payments network, postponed the start of a 0.4% merchant fee on payments above ₹2,000 (about $21) and said that the fee will instead now begin after Diwali out of respect for the holiday shopping rush. The delay came after retailers and petrol pump operators pushed back on the fee, with some threatening to stop accepting UPI payments altogether if it took effect.
NPCI posted on X:
“UPI and Services Steering Committee today decided that, keeping in mind the festive season, Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions, shall be implemented immediately post Diwali at a date to be notified separately.”
In September, I reported that India planned to end the free processing that UPI has offered since 2020. NPCI said that the network costs about ₹200B ($2.1B) a year to operate and that the new fees will fund infrastructure, security, and fraud prevention.
At the time I wrote:
I thought the whole point of UPI now was to offer “free” payment processing?
Did they not know how much it costs to operate a payment network before making the “free” mandate in 2019? It feels bait-and-switch and borderline anticompetitive to disrupt the entire economy on the promise of “free” and then pull the rug out from under merchants. Plus, starting to charge a fee, no matter the amount or threshold, is a slippery slope that causes merchants to lose confidence in the future of the network. Today, a ₹2,000 purchase carries a fee. Tomorrow, what else?
In my opinion, India just killed the credibility of UPI with this move and should’ve found a different way to continue subsidizing the operational costs of the project, which was originally designed to benefit all consumers and merchants.
I also questioned whether the major payment companies lobbied for the change, as they have the most to gain, and expressed my disappointment over the new fees. I do understand that there’s a cost to absorb with payment processing, but the greater economic impact of having a free way to transmit money digitally more than outweighs it.
Frankly, every country needs to offer a government-subsidized way to move money digitally, especially since many are pushing their citizens towards cashless societies. Economies aren’t stimulated when money sits still.
