The Unified Payments Interface (UPI) may see the biggest policy change since its launch as the Centre proposes to amend the Payment and Settlement Systems Act for new merchant charges in certain UPI transactions in the future.
The amendment, which was brought in by Finance Minister Nirmala Sitharaman to Parliament, does not make any immediate payment of the fee. Rather, it provides the legal framework to enable the government to impose a Merchant Discount Rate (MDR) in UPI transactions if needed in the future.
As per reports, officials are planning to increase the MDR of UPI transactions from more than Rs 2,000 to 0.3% to 0.5%. The proposed charge, however, will probably only take effect for merchants making more than Rs 1.5 crore in Annual Turnover. Meanwhile, fee-free digital payments will continue to benefit consumers and most small businesses.
There has been a proposal to try to calculate the MDR based on the annual turnover of a merchant, instead of the amount of single transactions.
Merchant Discount Rate, a payment processing cost that businesses have to pay the banks and payment service providers for accepting digital payments. UPI transactions are also free from any MDR since the government has removed them so far to promote digital payments.
The lack of merchant fees has been a long-standing challenge and debate for stakeholders to respond to as they seek to create a viable digital payments ecosystem and undertake infrastructure transformation projects.
The proposal is coming at a time when UPI is growing at a fast pace. The platform had processed a record 23.6 billion transactions worth Rs 29.9 lakh crore in July, establishing it as one of the world’s biggest real-time digital payment systems.