After widespread opposition from merchants across the country, India has postponed its plan to introduce merchant fees for its digital payment network. The plan was originally intended to enable payment service-related companies, which have long been dominated by Google and PhonePe, to earn higher profits.
National Payments Corporation of India (NPCI), which operates the unified payment interface in India (UPI), stated on Tuesday that due to the approaching festive shopping season, the plan to impose a 0.4% fee on transactions by eligible merchants exceeding Rs 2,000 (approximately $21) that was originally scheduled to be launched on October 15 will be postponed. This fee was announced last month and would mark a significant change from India's years-long policy of providing free services to merchants (UPI).
NPCI indicates that the new launch date will be scheduled after Diwali. Diwali is one of the most important festivals and shopping seasons in India, but the institution has not specified the exact new date. NPCI data shows that in September alone, UPI processed 24.07 billion transactions, amounting to 29.37 trillion rupees (approximately 305 billion US dollars).
This proposed fee has met with opposition from retailers and gas station operators, some of whom have warned that if the charge comes into effect, they may stop accepting payments in UPI.
In the past few years, UPI has become a pillar of India's digital payment system, with payments being completed through applications such as Google Pay, PhonePe, and Paytm. The Indian government has always maintained that UPI is free for merchants and provides subsidies to banks and payment providers to help them cover part of the costs, thereby supporting their development.
However, UPI has not always been free for merchants. Previously, banks and payment service providers charged merchants transaction fees, but the Indian government abolished these fees in January 2020 to encourage more people to shift from cash to digital payments; cash has long been the main method of purchasing goods and services in India. Since then, the volume and value of transactions using UPI have continued to grow.
In recent years, the Indian government has also attempted to promote UPI to go global. In April 2020, NPCI established an international business department, and currently, this network is available in multiple countries/regions such as Singapore, the United Arab Emirates, and France.
NPCI attempted to limit the impact of fees on new merchants by exempting payments of 2,000 rupees and below, as well as small merchants that receive less than 100,000 rupees (approximately 1,033 US dollars) per month through UPI. For larger transactions, the institution also set a fee cap of 300 rupees (about 3 US dollars). NPCI stated that the funds collected would be distributed to participants in the UPI ecosystem to cover costs for infrastructure, network security, and anti-fraud measures.
NPCI Last month, industry estimates cited that the annual cost of operating UPI was approximately 200 billion rupees (about $2.1 billion), which includes expenses for server capacity, anti-fraud measures, and technical support. For many years, banks and payment companies have stated that as transaction volumes increase, they need a way to recoup these costs.
