India is considering introducing fees for merchants using its Unified Payments Interface (UPI) system, which could mark a shift from a decade of free digital payments for businesses. The government has not yet finalised the rates or specific application, but proposals suggest a merchant discount rate (MDR) of 0.3-0.5% on larger transactions at big businesses.
Official statements indicate that consumers and person-to-person UPI payments will continue to be free. Any new merchant fees would apply only to certain transactions above a set threshold and at a nominal rate, meaning most UPI payments would remain free.
Launched in 2016, UPI has become one of the world's largest real-time payment networks. In July, the system processed 23.6 billion transactions valued at 29.87 trillion rupees (£232.2bn). Over 550 million people currently use UPI, which is also available in some form in 11 other countries.
Research suggests that the extensive merchant network, which has not previously paid MDR, was a key driver of UPI's success. Economists Abhinav Motheram and Sharon Buteau indicate that merchant acceptance was not just a result of UPI growth, but a significant factor in its expansion.
The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, has stated that the costs of running the system, including servers, transaction settlements, and fraud detection, need to be covered. One option reportedly under discussion would target transactions above 2,000 rupees at larger merchants, which account for approximately 67% of merchant-payment value despite being only about 4% of transaction volumes. This could generate up to a billion dollars in revenue for banks and payment companies.