💬 UPI - MDR The small fee raising big questions for India's payments revolution

India's decision to introduce a fee on some transactions made through its widely popular digital payments system has sparked a debate over its impact on businesses. The National Payments Corporation of India said on Tuesday that a 0.4% fee will apply from 15 October to certain UPI (Unified Payments Interface) payments above 2,000 rupees (£15; $21) made to businesses by customers. Businesses will have to pay the fee and will not be allowed to pass on the cost to consumers, it said. The government says the new charge will help keep UPI viable in the long run but experts worry it could raise expenses for businesses and discourage them from using the system. Launched in 2016, UPI allows people to instantly send and receive money through mobile apps. The ease of use has made it integral part of everyday life in India, used by everyone - from small vendors to booming businesses. Until now, the government, banks and payment companies have largely borne the cost of running and expanding the UPI system. The new charge - known as the Merchant Discount Rate (MDR) - is expected to help cover some of those costs. The government has said that MDR is not a tax or a charge collected by the government or NPCI, which operates the UPI system. The money will be distributed among payment system providers - including banks - to support operations and continued expansion, the finance ministry press release stated. The charge will not apply to all UPI payments. Person-to-person transfers will remain free, regardless of the amount. Payments of up to 2,000 rupees made to merchants will also remain free. Merchant payments through QR codes in rural and semi-urban areas will not attract MDR either. The government said "approximately 96% of person-to-merchant transactions will remain unaffected", either because they are below the threshold or because they are covered by the zero-MDR framework for small merchants. Certain merchant payments above 2,000 rupees, including those for railways, telecom services, insurance, fuel and agricultural inputs, will instead attract a flat charge of five rupees. For other transactions above 2,000 rupees that are subject to MDR, the fee will be 0.4% and capped at 300 rupees per transaction. The cap applies to transactions of 75,000 rupees or more. The regulator has said the money will support investment in areas including payment infrastructure, resilience, innovation and cyber security.

UPI has become a major part of daily life in India, so any new fee deserves careful consideration. It is good that person-to-person payments and small merchant transactions remain free. However, businesses already face many expenses, and even a small additional cost can affect them. The key will be ensuring transparency, affordability and continued convenience for both merchants and customers.

UPI has made digital payments simple and convenient for millions. Keeping small transactions free is positive, but businesses also need affordable payment options. Transparency and a balanced approach will be important to ensure UPI remains convenient for everyone.