India is moving closer to allowing merchant fees on some transactions processed through the Unified Payments Interface (UPI), following the introduction of proposed changes to a key payments legislation in parliament.
According to a Reuters report, the proposals relate to amendments to India’s Payment and Settlement Systems Act.
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The amendment, tabled by Finance Minister Nirmala Sitharaman, would enable the introduction of a merchant discount rate (MDR) on digital payments, the news agency added citing industry and regulatory sources.
The amendment would create the legal basis for charging MDR, although, no decision has yet been taken on the level of fees or the scope of transactions that would be covered.
MDR is paid by merchants to banks and payment service providers for processing digital transactions. In India, credit card payments typically involve an MDR of about 1.5%, while debit cards can carry fees of up to 0.9%.
UPI transactions are currently free for merchants.
Reuters reported that policymakers are considering two approaches. One option would apply MDR only to transactions above a specified threshold, while another would determine fees based on a merchant’s annual turnover.
A government source told the publication that one proposal under consideration would impose an MDR of 0.3% to 0.5% on transactions above Rs2,000 ($20.97) for merchants with annual turnover exceeding Rs15m.
UPI is among the world’s largest real-time payments networks. Official data shows it processed 23.6 billion transactions worth Rs29.9trn ($313.5bn) in July.
Walmart-backed PhonePe and Alphabet’s Google Pay are the largest UPI payment apps in India.
Recently, several payment companies objected to a planned UPI checkout feature, arguing it could affect competition.
