UPI merchant fee set to return after seven years

The Story in Brief

The government has proposed an amendment to the Payment and Settlement Systems Act, 2007, to allow a merchant discount rate (MDR) on UPI transactions, ending a blanket ban imposed in 2019. Finance minister Nirmala Sitharaman clarified that person-to-person transfers will not be charged, and only commercial transactions above a likely threshold of Rs 2,000 may attract MDR. Analysts expect the fee to be 0.5, 0.75%, far lower than Visa or Mastercard rates. The move follows lobbying by banks and the RBI, who say free UPI has starved them of revenue needed for infrastructure.

Experts warn that large merchants may pass the MDR to customers disguised as platform or convenience fees, or embed it in product prices. Deccan Chronicle reports that 86% of UPI transactions are below Rs 500 and would be unaffected, while the top 4% by value, worth Rs 2 lakh crore, are the target. The government insists the fee falls on merchants, not consumers, but small traders have illegally passed card MDR to customers in the past.