There is no plan currently to impose a fee on Unified Payments Interface (UPI) transactions, the finance ministry informed the Lok Sabha on Monday, days after comments by Reserve Bank of India (RBI) Governor Sanjay Malhotra sparked concerns that these payments may cease to be free for individuals.
“Presently, there is no such proposal to impose transaction charges on UPI,” Minister of State for Finance Pankaj Chaudhary said in response to a written question in the Lower House of Parliament asking if the government or the central bank proposed to charge a fee on UPI transactions.
Speaking at the Financial Express BFSI Summit in Mumbai on July 25, Sanjay Malhotra had said that UPI being free had “borne good fruits”. However, for any service to be sustainable, its costs had to be met. “The important thing is that the UPI, or any other payment system for that matter, is accessible, cheap, secure, and sustainable…and it will be sustainable only if someone bears the costs. So as long as it’s the government or someone else — that’s not so important — the important thing is that costs of any service should be paid, whether collectively or by the user.”
The central bank chief clarified his comments a couple of weeks later on August 6 at the post monetary policy press conference, asserting he had not said that UPI cannot remain free forever.
“I never said that it cannot remain free forever. My sense is that it is not free even now. Someone is paying for it. The government is subsidising it. But somewhere the costs are being paid. The question really is who pays for it. That is the other question. But I never said that the users will have to pay,” Malhotra had said earlier this month.
Speculation has been rife for some time now that UPI payments may be slapped with a per transaction fee called the Merchant Discount Rate (MDR). Usually in the range of 1-3 per cent, the MDR is levied on merchants by banks that process debit and credit card payments. Since January 2020, there has been no MDR on RuPay debit cards and UPI transactions to promote the adoption of digital payments across the country.
In lieu of the lack of MDR, the government has been subsidising payments of up to Rs 2,000 made to small merchants through its ‘Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)’. The incentive offered is capped at 0.15 per cent of the transaction value. Large merchants are not covered under this scheme.
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In his answer in the Lok Sabha on Monday, Minister of State for Finance Pankaj Chaudhary also said that under the incentive scheme, the government had paid out around Rs 8,730 crore during the last four years.
Chaudhary’s answer in the Lok Sabha is the latest instance of the finance ministry rejecting talk of UPI transactions possibly being charged a fee. As recently as June, the ministry had said such talk was “completely false, baseless, and misleading”.
While individuals may not have to pay a fee for making transactions via UPI, banks have already begun to ask payment firms for money. According to media reports, starting August 1, ICICI Bank started charging payment aggregators such as Razorpay, PayU, and Pine Labs a fee of 0.02-0.04 per cent per transaction – up to a limit of Rs 6-10 per transaction – although these aggregators will not have to pay the fee if a UPI transaction is settled directly into an ICICI Bank account held by a merchant. YES Bank and Axis Bank are said to be among the private banks who also charge payment aggregators a similar fee.
Over the years, the sheer number of UPI transactions has risen sharply, with latest data showing 19.47 billion UPI transactions worth Rs 25.08 lakh crore were conducted in July. Compared to the same month last year, the transaction volume and value was up 35 per cent and 22 per cent, respectively.
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