UPI fee could recover up to Rs 15,000 crore annually while keeping most transactions free

Mumbai: The proposed 0.4% merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions could help recover ₹13,000-15,000 crore of the payment system's estimated ₹21,000 crore annual cost in its first year while leaving most transactions free, said National Payments Corporation of India (NPCI) chief executive Dilip Asbe.

Addressing the 13th SBI Banking and Economics Conclave on Thursday, he also said that the levy is unlikely to impose a significant burden on small businesses or customers, as about 80% of the MDR pool would come from merchants that already accept credit cards and pay similar charges.

Also Read: Proposed 0.4% UPI merchant fee will not be passed to consumers: Report


Asbe said 96% of UPI transactions and 75% of transaction value would remain outside the MDR framework. Only around 10% of the MDR value would come from merchants that do not currently accept credit cards, he said, adding that the ecosystem must ensure these charges are not passed on to customers.

"While we cannot fully recover the cost, we can at least reasonably recover so that it incentivises market players to reinvest and grow UPI," Asbe said. "We thought ₹13,000-15,000 crore could be a reasonable value in year one to recover from the ecosystem."

Reinstating charges after six years of zero MDR would cause some pain but had become necessary as investments and UPI growth slowed.

Also Read: Proposed 0.4% UPI MDR could recover Rs 15,000 crore in first year: NPCI chief

Reinstating charges after six years of zero MDR would cause some pain, but it has become necessary as investments and UPI growth slow, the NPCI CEO said, adding, "The initial five-six years of investments which we saw players making in the ecosystem kind of slowed down because there was absolutely no revenue back in the system."

About 80% of the MDR pool would come from businesses recording more than ₹1,000 crore in annual digital-payment collections, which already accept credit cards and pay higher charges, according to him.