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The Narendra Modi government in India will impose a 0.4% fee for transactions over 2000 rupees (approximately $21) in the Instant Payment UPI (Unified Payment Interface) system starting October 15. This action, announced by the National Payments Corporation of India (NPCI), has raised concerns among businesses.
Impact of the Fee on Businesses
The UPI system has transformed the way payments are made in India since its introduction a decade ago, allowing customers to make instant payments without any fees. However, experts warn that this new fee could lead businesses to exit the system. Currently, person-to-person payments remain free, but payments for services such as fuel, train tickets, and mobile bills will incur a fixed fee of five rupees.
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The government has introduced this fee under the title of Merchant Discount Rate (MDR), stating that its goal is to transfer the costs of digital payment infrastructure to businesses. Previously, the costs associated with the operation of UPI were covered by banks and fintech companies that also benefited from the system.
Political and Economic Reactions
The government has stated that businesses will not be allowed to pass the additional costs onto customers, but in practice, this situation is changing. Vikas Mathe, a grocery store owner in the national capital region, has announced that he is already imposing a fixed fee of five rupees for transactions over 1000 rupees: "If the government charges us, we will also raise costs for customers."
The high volume of UPI transactions significantly distinguishes it from other digital payment systems worldwide. Last month, UPI recorded a record 24.51 billion transactions, equivalent to 791 million transactions per day and a value of over $10 billion. This system accounts for nearly half of all global digital transactions on regular days.
The opposition Congress party has strongly criticized this decision, accusing Modi's government of succumbing to external pressures. Jairam Ramesh, a Congress spokesperson, has asked: "Why a 0.4% fee? Is this action taken to compete with American card companies against UPI?"
These changes are presented as a necessary measure to maintain "sustainable revenue" from this system, while the government seeks to ensure investment in innovation and cybersecurity.
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