Industry Odisha Bureau, Aug 5: The Government has proposed changes to the Payment and Settlement Systems Act that could pave way for the merchant fee on high-value UPI transactions. This could potentially end the zero-fee model for select payments in the future.
The proposal was introduced in the Parliament as part of the Payment and Settlement Systems Act. It seeks to empower the government to levy a Merchant Discount Rate (MDR) on notified digital payment modes, including UPI. Further, the amendment does not impose an immediate fee. However, it creates the legal framework for introducing one at a later stage.
According to reports, one proposal under consideration is an MDR of 0.3% to 0.5% on UPI transactions above Rs 2,000. This will be for merchants with an annual turnover exceeding Rs 1.5 crore. Policymakers are also evaluating an alternative model that would link the UPI fee to a merchant’s annual turnover. This, rather than the value of individual transactions, while also considering a cap on the maximum amount chargeable.
The move comes after repeated arguments from payment service providers and fintech companies. The argument being that the current zero-MDR regime makes it difficult to sustain investments in payments infrastructure, cybersecurity, and technological innovation. A limited fee on high value merchant transactions is being viewed as a solution. This way it will strengthen the long-term sustainability of India’s rapidly expanding digital payments ecosystem.
If the UPI fee proposal is implemented, the charges would be paid by merchants to banks and payment service providers for processing digital payment. Consumers are not expected to be charged directly, and smaller businesses are likely to remain outside the scope of the proposal. Merchants already pay MDR on card transactions, with credit card fees generally ranging from 1.5% to 3%, while debit card charges are comparatively lower.
