India’s Lok Sabha has passed legislation permitting charges on certain UPI transactions, a shift that could transform the nation’s popular digital payment system and shift from its long-standing zero-fee model.
India’s lower house has approved legislation that would remove a long-standing legal obstacle to charging fees on some Unified Payments Interface transactions, opening the door to a shift that could alter one of the country’s most popular digital payment systems.
According to Deccan Chronicle, the Lok Sabha passed an amendment to the Payment and Settlement Systems Act, 2007, without debate, clearing the way for banks and payment service providers to levy Merchant Discount Rate charges on UPI payments. At present, the law blocks those charges, helping keep most UPI transactions free for users and merchants.
The move comes as the government and the Reserve Bank of India wrestle with how to pay for the infrastructure behind India’s fast-growing digital payments network. RBI governor Sanjay Malhotra said on Wednesday that investment in public payment infrastructure must be funded one way or another, arguing that the choice is between taxpayers footing the bill or adopting a “user pays” model through MDR. Analysts quoted by Deccan Chronicle expect any charge to be modest and possibly limited to merchant payments above a certain threshold, while peer-to-peer transfers may remain free.
The broader policy backdrop is not new. Reporting on the earlier Payments and Settlement Systems amendments shows the legislation has long been tied to improving the stability, transparency and legal framework of India’s payments system. But the latest move, if it is followed by formal rules, would mark a significant departure from the zero-fee model that has helped drive UPI’s mass adoption.
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