UPI transactions above INR 2000 could be charged but can you still transfer to friends for free?
Banks cannot impose charges on payments via UPI transactions below Rs 2000
The sheer convenience of carrying out transactions within seconds is what made UPI or Unified Payments Interface a big hit among Indian consumers. But off late there has been a lot of confusion on whether these transactions could attract a fee. The Merchant Discount Rate (MDR) had rattled a few feathers, after the government introduced a revised framework for digital payments earlier this year.
The latest notification from the government very categorically specifies that consumers will not have to pay a transaction fee simply for making UPI payments above Rs 2,000. It goes on to say that person-to-person, or P2P, transactions will also continue to remain free. Currently, as a consumer any amount transacted whether Rs 500, Rs 2000 or Rs 20,000, is enabled completely free of cost.
However, the MDR provision had caused confusion as people assumed that transactions above Rs 2000 would attract a fee to be paid by the consumer. Now that rumour is put to rest as the government has clarified that any future MDR would apply to only a limited set of merchant transactions which would be above a specified threshold.
A new revenue stream for banks?
This means that banks and payment service providers can stand to benefit from a potential new revenue stream. Every time a merchant accepts a digital payment, it pays a merchant discount rate, or MDR, which is then shared by the banks and other entities that route the transaction. The rate runs between 1% and 3% of transaction value on credit cards and goes up to 0.9% on debit cards.
Zero-MDR unsustainable?
In a March report, the Standing Committee on Finance said that not having an MDR leaves the UPI ecosystem financially unsustainable. Banks, fintechs, payment service providers and other stakeholders have to keep the payment infrastructure running. This means guarding these transactions against fraud, strengthening cybersecurity, and ensuring systems stay operational round the clock. Security-related spending alone makes up more than 20% of what it costs to run a UPI platform each year.
So the question of who bears the infrastructure costs isn't going away anytime soon. But for now, users can keep scanning, entering their PIN and paying, without worrying that a payment above Rs 2,000 will automatically attract a charge.
