Can banks charge for UPI payments now? Here is what we know
Will Banks Be Allowed to Levy Fees on UPI Transactions? Understanding the New Amendment
Bharatmorningnews.com – Thursday saw the Lok Sabha approve legislation designed to modify the Payment and Settlement Systems Act dating back to 2007. Once the Upper House approves it and the President gives assent, this updated law will enable authorities to let financial institutions and payment operators collect fees for UPI and other electronic transactions going forward.
Currently, regulations prevent banks and payment service providers from applying a Merchant Discount Rate on UPI transfers. The new legislation eliminates that restriction. However, this doesn't signal that everyday users will face immediate charges for using UPI services.
What Is the Merchant Discount Rate?
MDR represents a modest charge that merchants remit to banks and payment platforms each time a buyer completes a digital transaction. For instance, when someone pays a retailer electronically, the shop owner typically pays a small processing fee to the service provider handling the payment.
Since 2020, UPI transactions have operated without MDR fees, a move intended to boost electronic payments and minimize reliance on physical currency.
Unified Payments Interface, commonly known as UPI, enables instant fund transfers between bank accounts through mobile devices. It has emerged as the nation's leading digital payment channel, serving millions of daily users for shopping, utility bills, and money transfers.
Consumer Impact Remains Minimal
The Payments Council of India clarified that the amendment won't force users to pay for UPI transactions.
UPI has always been free for consumers since its launch in 2016. Every Indian can continue making instant digital payments without paying any transaction charges.
The industry body further explained that any merchant service charges introduced would remain commercial agreements between businesses and payment providers, rather than becoming direct costs for consumers.
According to the council, UPI was originally designed to simplify and make affordable digital payments accessible to enterprises of every scale, from small neighborhood stores to larger organizations.
Infrastructure Costs and Future Investments
Today, UPI stands as the globe's biggest real-time payment network, processing billions of transactions monthly. Maintaining such an extensive digital infrastructure demands ongoing expenditure on technology upgrades, cybersecurity measures, fraud detection systems, and customer assistance.
At present, financial institutions, fintech firms, the National Payments Corporation of India, and the Reserve Bank of India shoulder these operational expenses.
Payment operators have argued that permitting MDR would enable greater investment in enhancing the UPI ecosystem.
A July 28 analysis by global brokerage Bernstein suggested that even if MDR gets applied to UPI transfers, consumers probably won't absorb the additional costs, according to Bloomberg reports. The firm projected that a merchant-funded MDR ranging from 30 to 40 basis points might emerge as a viable scenario should the government authorize such fees.
Internationally, merchant service fees represent standard practice within digital payment frameworks, where companies compensate providers for transaction handling while end-users enjoy seamless access to electronic payments.
What Comes Next?
The legislation merely grants the government authority to permit charges. A definitive choice regarding whether MDR will apply to UPI, along with the potential fee structure, remains pending.
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