Government may consider 0.3% fee to ensure UPI’s financial viability: report

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A study by IIT Bombay suggested that the government could consider a uniform digital payment facilitation fee of 0.3% to fund the infrastructure required for such transactions and also to ensure the financial viability of the UPI payment system, according to a PTI report. He also said that the 0.3% facilitation fee can generate around INR 5,000 crore in 2023-24.

The study titled “Fees for PPI-Based UPI Payments – The Deception”, which analyzes the impact of the National Payments Corporation of India’s (NPCI) decision to introduce interchange fees on payments via wallets phones, reportedly argued that payments received by merchants must remain “unpolluted”, whether they come directly from UPI or via prepaid e-wallets.

The NPCI, effective April 1, 2023, introduced an interchange fee of 1.1% on the transaction amount for using prepaid payment instruments to make payments via UPI to merchants. As reports suggest, fees will be charged based on the service provided. For example, 0.5% will be charged on fuel-related payments, 0.7% for telecommunications, utilities/postal, education and agriculture transactions and 1% for court costs, payments taxes and insurance sales. The 1.1% interchange fee will have no impact on the end customer and UPI transactions will remain free for him. Additionally, Peer-2-Peer (P2P) and Peer-2-Merchant (P2PM) transactions between a bank account and a PPI will not require interchange fees.

The report further noted that instead of forcing operational expenses on merchants and creating disparity, they should be borne by the user of the prepaid wallet, thus never introducing a situation similar to passive smoking. Thus, all UPI-based payments received by merchants will not be polluted and will not be burdened by the merchant discount rate (MDR).

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