India’s Unified Payments Interface will begin charging merchants a 0.4% fee on some payments above ₹2,000 (about $21) on October 15, ending the free processing merchants have had since 2020. The fee tops out at ₹300 ($3) per payment, merchants taking in less than ₹100,000 ($1,043) a month through UPI are exempt, and railways, telecom, insurance, and fuel pay a flat ₹5 ($0.05) instead. Well, get ready for every ₹2,000+ transaction to get processed in multiple payments, I guess.
Payments of ₹2,000 or less account for over 95% of merchant payment volume on UPI and merchants are contractually forbidden from passing the fee onto customers, though they can certainly raise the cost of their goods across the board to cover it, which is effectively the same thing. The National Payments Corporation of India, which runs UPI, cites industry estimates that the network costs about ₹200B ($2.1B) a year to operate and says the fees will fund infrastructure, security, and fraud prevention.
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.
Did the corporations have something to do with this? TechCrunch reported that part of the new fees will be distributed to payment companies like Paytm, Pine Labs, PhonePe, and Razorpay. Did they lobby for this?
I’m disappointed in the change, as I’ve often praised UPI as being a model that other countries should follow. Of course 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.
