A new merchant fee threatens the nation\u2019s cashless revolution and risks pushing people back to cash<\/p>\n
[NEW DELHI] India\u2019s success stories are often embroiled in controversies given the country\u2019s divisive political climate. If government supporters are keen to tout them, critics are equally quick to question them.<\/p>\n
But there is one success story that has risen above these divisions \u2013 the country\u2019s instant real-time digital payments system, or Unified Payments Interface (UPI).<\/p>\n
Regardless of one\u2019s political leanings, there is no disputing that UPI has transformed the way Indians pay for goods.<\/p>\n
Whether it\u2019s jewellery or jalebis, pants or pakodas, paying for goods no longer involves handling grubby old currency notes.<\/p>\n
Instead, a quick scan of the retailer\u2019s QR code and a few taps on your smartphone app are all it takes. No fuss over figuring out how to return the exact change either.<\/p>\n
The ease has proved addictive.<\/p>\n
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<\/p>\n From just 373 transactions in its first month after it was introduced in April 2016, the system has grown to over 24 billion transactions in September 2026. That is more than 27,700 transactions in just the time it takes you to read this sentence.<\/p>\n What is even better is that the payments system has been free for users, both customers and merchants.<\/p>\n But soon this will no longer be the case, with the authorities having paved the way for fees to keep UPI running<\/a>, a decision that has thrown the payments system into the thick of a raging debate.<\/p>\n Starting on Oct 15, merchants will have to pay a charge of 0.4 per cent for every transaction over 2,000 rupees (about S$27).<\/p>\n This merchant discount rate (MDR) has been capped at 300 rupees for transactions of 75,000 rupees or more.<\/p>\n Payments of more than 2,000 rupees for certain key services such as at petrol pumps and railways, on the other hand, involve a flat fee of five rupees.<\/p>\n Customers, however, remain unaffected, and every person-to-person transfer, regardless of the amount, will also be free.<\/p>\n Small merchants \u2013 those with UPI QR-code receipts of less than 100,000 rupees per month \u2013 will also continue to enjoy a mandatory zero-MDR rate.<\/p>\n What\u2019s the fear?<\/p>\n The move has generated anger among merchants, many of whom operate in a low-margin business environment.<\/p>\n This has prompted worries that they may pass on the cost to customers, thereby slowing UPI\u2019s expansion in India and undermining the growth of a globally acknowledged exemplar of digital payments that has helped formalise large segments of India\u2019s informal cash economy.<\/p>\n With about 554.9 million users on UPI, the system still has room left to grow in a country of more than 1.4 billion people.<\/p>\n Any additional charge, including an indirect cost imposed on customers, risks pushing people back to cash, especially in India\u2019s price-sensitive markets.<\/p>\n At the heart of this debate are merchants such as Akhilesh Kumar, the 38-year-old owner of a shoe shop in Delhi\u2019s Sarojini Nagar market, who was waiting for customers one afternoon in September.<\/p>\n Footfall has been low, he says, since the start of the war with Iran<\/a>.<\/p>\n \u201cBusiness is already down, and now this extra fee will only deepen my losses,\u201d Kumar laments.<\/p>\n A back-of-the-envelope calculation puts the additional cost to his business because of the new MDR at around 2,000 rupees per month.<\/p>\n This, he says, will be difficult to cough up because of existing expenses such as wages for his staff and taxes, as well as charges he must pay card companies, among other costs.<\/p>\n MDRs for card payments range from 1.5 to 2.5 per cent in India, which often prompts merchants to illegally demand an extra charge from customers or ask for payment in cash.<\/p>\n Kumar, however, acknowledges that if he tries demanding extra payment from customers for using UPI \u2013 which accounts for seven out of every 10 transactions at his store \u2013 they will simply go to another shop.<\/p>\n \u201cI will have to pay for this charge out of my pocket, what else?\u201d he says, demanding that the authorities take steps to revoke the MDR on UPI payments.<\/p>\n Why pay?<\/p>\n Even though UPI has been free for its users, maintaining its infrastructure involves costs.<\/p>\n According to one estimate, it costs as much as 207 billion rupees each year to keep the system running, including expenses on infrastructure maintenance, server capacity, cybersecurity and banking networks.<\/p>\n Even in Brazil, where the retail digital instant payments system known as Pix is celebrated widely, businesses pay an average fee of 0.22 per cent per transaction.<\/p>\n