Reuters reported Wednesday (Sept. 16) that India is set to begin charging merchants a 0.4% fee on transactions of more than 2,000 rupees ($21), known as the merchant discount rate (MDR), though person-to-person transfers remain free.
The MDR is not a tax, the government said in its announcement, but is “distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem,” per the report.
The report notes the size of UPI, which last month processed 24.5 billion transactions worth 29,823 billion rupees for more than 550 million users. The service holds a share of 84% of India’s digital payments by volume and a 49% share of global real-time payment volumes.
Walmart-backed PhonePe and GooglePay enjoyed around 80% market share by value of UPI transactions last month, per Reuters.
When UPI was launched in 2016, it included some nominal charges, though by 2020, all fees had been eliminated, the report said. The zero-MDR system is due to end Oct. 15.
The report added that while the National Payments Corporation of India — which operates UPI — has forbidden merchants from passing on the fees to consumers, critics worry that will eventually happen nonetheless.
Merchants pay the fee to banks that process the transactions and to payment apps like Google Pay and PhonePe. India’s government, central bank and payments authority contend the MDR will help make UPI self-sustainable, promote expansion in rural and semi-urban areas, and ensure that most payments remain free of charge.
But a report on the change by the BBC notes another concern from critics: that merchants will stop accepting UPI transactions above 2,000 rupees and ask customers to switch to cash.
Last year, the Indian Finance Ministry denied rumors of new fees on UPI transactions, calling them “false, baseless, and misleading.”
In other digital payments news, recent research from PTMNTS Intelligence underscores the importance of merchants offering customers their preferred payment methods. The data shows that 21% of U.S. consumers had abandoned an online cart in the prior 30 days when their chosen payment method wasn’t available.
“That represented nearly 56 million shoppers,” PYMNTS wrote Wednesday. “Digital wallets accounted for the largest share of that missed business, as 47% of cart abandoners wanted to use one, equal to 26.3 million consumers.”
