UPI's 145 billion payments, then a 0.4 per cent merchant fee
UPI carried about 145 billion payments in the six months to September, National Payments Corporation of India data released this week shows, a 27 per cent rise from 114 billion in the same half of last year. In a fortnight, on 15 October, the first charge since January 2020 lands on the larger ones.
The question a household is already asking is whether that charge is theirs. The finance ministry's answer is no. In a statement issued with the NPCI circular, it said the merchant discount rate, or MDR, is a charge inside the merchant payment ecosystem and is not a charge on customers making UPI payments. Banks have been advised to ensure merchants do not pass it on, and UPI apps are barred from levying a platform fee.
Most of what people actually do stays free. A transfer between two people carries no charge at any amount. A merchant payment of Rs 2,000 or less carries no charge, and NPCI says those are more than 95 per cent of merchant payments by volume. A small merchant who receives up to Rs 1 lakh a month through a UPI QR code is exempt whatever the size of an individual payment, because the exemption is a classification of the account, not of the transaction.
What changes is the larger merchant payment. Above Rs 2,000, a standard merchant pays 0.4 per cent of the whole bill, capped at Rs 300 once the payment reaches Rs 75,000. A Rs 3,000 purchase costs the merchant Rs 12. A Rs 50,000 payment costs Rs 200. A Rs 1 lakh payment costs Rs 300, and so does anything larger, because the cap stops the number there.
Five sectors were carved out. Railways, telecom, insurance, fuel and agricultural inputs pay a flat Rs 5 above Rs 2,000 instead of 0.4 per cent, and the same flat fee covers utility bills such as electricity, municipal water and piped gas. A Rs 3,000 railway ticket therefore costs the merchant Rs 5, not the Rs 12 the percentage would have produced. The logic is that a percentage grows with the bill in exactly the sectors that run on thin margins.
Capital-market payments got the gentlest rate of all. Money moving through UPI to mutual funds, securities, stockbrokers and dealers attracts 0.02 per cent, capped at Rs 300. A Rs 10,000 investment costs the platform Rs 2 and a Rs 1 lakh payment costs Rs 20. The finance ministry said the lower rate was meant to support continued retail participation in the markets. Brokerages are nonetheless weighing their options: Mint reported that firms are discussing transaction charges and mandate-based payments, with one executive saying the MDR has to be paid by somebody. Recurring mandates, the route most systematic investment plans use, are exempt.
The half-year numbers say something about the average ticket. Payment volume rose 27 per cent to about 145 billion, but value rose only 20 per cent, to Rs 177 lakh crore from Rs 148 lakh crore. More payments, each of them smaller, is the plain reading.
September itself was a small step back. Volume slipped about 1.8 per cent to 24.07 billion from a record 24.51 billion in August, and value fell 1.5 per cent to Rs 29.37 lakh crore from Rs 29.82 lakh crore. UPI still moved an average of 802 million payments a day worth Rs 97,913 crore, and volume was about 23 per cent higher than a year earlier.
That dip came before the fee existed, so the data does not show the MDR changing anyone's behaviour. NPCI's own framing is that the charge touches roughly 4 per cent of merchant transactions and leaves about 96 per cent alone, because most payments sit under Rs 2,000 or belong to exempt small merchants.
The reason given for the change is the cost of running the rails. The RBI backed the framework, saying a fair spread of MDR would support investment in technology and infrastructure and help UPI keep scaling. NPCI says the money funds upgrades, cybersecurity and customer service, and that a dedicated fund for small merchants is proposed. UPI had run at zero MDR since January 2020, when the law made it free and the Centre instead paid banks an incentive to keep it that way.
The fee is also being contested. A public interest petition in the Supreme Court, reported by PTI on 16 September, challenges the framework as arbitrary and as introduced without adequate consultation, and asks for it to be quashed or reconsidered after an impact assessment, with an independent review by the RBI. The charge takes effect on 15 October with that case pending.
Where the 0.4 per cent goes is a split. The acquiring bank, the issuing bank, the UPI app and the payment service provider each take a share, which is why the RBI talks about a fair distribution rather than a single collector. The merchant never sees the fee as a line on the customer's bill; it is deducted before the money reaches them.
What the record does not establish is what happens next. No published figure shows what the levy will collect. The September decline happened before the fee and is smaller than the month's year-on-year growth, so it cannot be attributed to it. Nobody yet has a month of data under the new rules; the first clean test is October's numbers, reported in November. Until then the only thing the evidence supports is that the price of UPI to the person holding the phone has not changed, and that roughly one in twenty-five merchant payments is about to cost the person receiving it something.
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