Get ready, UPI may charge a fee for payments above Rs 2,000: Story in 5 points

UPI may no longer be completely free. India has proposed a law change that may add a fee for UPI payments above Rs 2,000. Here is everything you need to know about it.

The days of free UPI payments may be numbered. UPI, or Unified Payments Interface, which is one of the world’s largest real-time payment systems, may soon charge a fee for transactions above Rs 2,000.

This change is part of an amendment to the Payment and Settlement Systems Act, introduced in the Parliament by Finance Minister Nirmala Sitharaman. If approved, it could allow India to bring in merchant fees for UPI payments.Before we have a look at what the amendment actually means, and what the fee is about, keep in mind that UPI manages billions of transactions every month. For instance, last month, about 23.7 billion UPI payments took place, worth Rs 29,9 lakh crore as per official figures

1. What is the proposed law for UPI?

The amendment is part of changes to the Payment and Settlement Systems Act and the Taxation and Other Laws (Amendment) Bill. This would allow banks and payment service providers to charge merchant discount rate (MDR) on notified electronic payment modes.As per a report from Reuters, this proposed law change will only create a provision for such a charge on UPI payments. That is, UPI won’t immediately start charging a fee, but the government will get the right to add this fee at a later date if it chooses to do so.

2. What could the UPI fee be?

As per the report, one proposal under consideration is an MDR of 0.3 per cent to 0.5 per cent on UPI transactions above Rs 2,000 for merchants with annual turnover of more than Rs 1.5 crore.

That is, only UPI merchants who have a turnover of more than Rs 1.5 crore, will have to pay this fee on payments that exceed Rs 2,000.

Policymakers are also considering another route – linking the fee to a merchant’s annual turnover instead of the value of individual transactions. The government may also place a ceiling on the absolute amount charged.

3. Why is this fee being proposed?

Payment firms and industry executives have long argued that a zero-fee UPI model makes it harder to build a sustainable business. Since they do not earn from processing UPI transactions, they say their ability to invest in technology, strengthen payment infrastructure and expand services is limited.

A limited MDR on high-value transactions is being discussed as a way to support the long-term growth of the digital payments ecosystem.

4. Who would pay this UPI fee?

As mentioned earlier, the MDR fee will be paid by merchants to banks and payment service providers for processing digital payments.

Under the options being discussed, the burden is expected to fall mainly on larger businesses rather than neighbourhood shops and small retailers, while consumers are unlikely to be charged directly.