UPI will stay free for users, some merchants may face small fees later: Govt

The government said UPI will remain free for users, with P2P transactions and most merchant payments carrying no charges. A nominal, threshold-based MDR may be introduced for a limited set of merchant transactions to ensure UPI's long-term sustainability.

In Short

• Govt says nominal charges may apply to high-value merchant transactions
• Claims amendment aims to ensure UPI’s sustainability and security
• Congress says charges will inevitably be passed on to users

The Government of India on Saturday said that users will not have to pay any transaction charges for making payments through the Unified Payments Interface (UPI), while a nominal Merchant Discount Rate (MDR) could be introduced for a limited set of merchant transactions in the future.

The statement comes a day after the Lok Sabha passed a Bill to amend the Payment and Settlement Systems Act, 2007, which authorises the government to permit banks and other service providers to levy charges on payments through UPI and other notified electronic payment modes.

The Ministry of Finance said Person-to-Person (P2P) UPI transactions will continue to remain completely free. It also stressed that the vast majority of merchant transactions will remain free of charge.

According to the government, if MDR charges are introduced, they will apply only to a limited set of merchant transactions above a certain threshold. The charges will be nominal and significantly lower than the MDR applicable to debit or credit card transactions. The government said MDR, if introduced, will be threshold-based and will not apply blanketly to all UPI transactions.

WHY IS GOVERNMENT AMENDING THE PSS ACT?

The government said the amendment is an enabling provision aimed at ensuring UPI’s long-term sustainability, technological advancement and resilience against emerging risks.

It said UPI’s exponential growth in transaction volumes requires significant and continuous investments in cybersecurity, fraud prevention and infrastructure upgrades.

The government also said the amendment is necessary to encourage more companies to expand their operations in the digital payments sector by creating a self-sustaining revenue model and increasing competition.

It said relying only on subsidies would not be viable for the next wave of UPI growth and that India needs a balanced framework to keep the payment system robust, inclusive and future-ready.

INEVITABLE THAT CHARGES WON'T BE PASSED ON TO USERS: CONGRESS

Congress leader Jairam Ramesh on Friday hit back at Finance Minister Nirmala Sitharaman after she accused him of spreading "canards" over the Taxation and Other Laws (Amendment) Bill, and said government assurances or tweets are no substitute for statutory safeguards.

In a long post on X, Ramesh said the finance minister's response to his "so-called canards" hinges on five "dubious claims."

He said the claim that the Merchant Discount Rate (MDR) applies only to merchants and not to customers is misleading.

"MDR is charged to merchants but it is inevitable that they pass transaction costs on to consumers through higher prices or differential pricing -- just as they do with credit and debit card payments. Moreover, 'merchants' include medium and small businesses, kirana stores, and even street vendors, the very backbone of UPI adoption," the Congress general secretary in-charge communications.

GOVERNMENT REJECTS CLAIMS OF EXTERNAL INFLUENCE

The Ministry of Finance also rejected reports suggesting that external influences were driving the policy changes, calling such claims “unfounded, completely false and misleading”.

The government said that if external pressure had influenced its policy, it would not have introduced UPI in 2016 or made it free for both merchants and citizens since January 2020.

“The truth is simple,” the government said, reiterating that UPI is India’s own innovation and that it remains committed to keeping the service free for citizens while ensuring its sustainability for decades.

- Ends