Prime Minister Narendra Modi’s government is poised to levy new charges for using the country’s popular, homegrown instant digital payment system for select merchant transactions, raising concerns for businesses.
asserted
government → poise → businesses
India’s quasi-governmental National Payments Corporation of India (NPCI) has announced that a 0.4 percent fee will apply from October 15 to all UPI (Unified Payments Interface) transactions above 2,000 rupees ($21) made to businesses.
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fee → announce → businesses
Since its introduction a decade ago, the UPI – which allows customers to make instant payments via apps, free of any cost – has transformed how the world’s largest population makes payments.
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population → allow → payments
From street vendors to global brands in shopping malls, QR codes are everywhere in India, as cash increasingly gives way to digital payments.
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cash → give → payments
However, experts warn that the new charges could push businesses out of the system.
uncertain
charges → warn → system
The move has also triggered a political storm in India, with the opposition accusing Modi of passing on costs to merchants under foreign pressure.
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opposition → trigger → pressure
So, what is changing in India’s UPI payments?
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what → change → payments
And who stands to gain and lose?
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who → stand → ?
What changes are being made to UPI?
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changes → make → UPI
Payments made to businesses worth more than 2,000 rupees ($20.84) will incur a levy of 0.4 percent, capped at 300 ($3.13) rupees.
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Payments → make → rupees
All person-to-person transactions will remain free.
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transactions → remain → person
Paying for other services, such as at fuel pumps, for railway tickets, or telecom bills, will have a flat fee of five rupees imposed per transaction.
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Paying → pay → transaction
The government is calling the new levy the Merchant Discount Rate (MDR), through which the cost of maintaining the digital payment infrastructure is shifted to businesses.
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cost → call → businesses
So far, the costs of operating UPI have been borne by banks and fintech companies, which have also benefitted commercially from the system, while government incentives have supported its zero-MDR model.
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incentives → operate → model
Under the new policy, the government will bar merchants from passing on the additional cost to customers.
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government → bar → customers
However, the reality is already shifting.
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reality → shift → ?
Vikas Mahto, who operates an all-purpose grocery store in the National Capital Region, has already started charging a flat five-rupee ($0.05) fee on all transactions above 1,000 rupees ($10.42).
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who → operate → rupees
“If the government charges us, we increase costs for customers,” he told Al Jazeera.
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he → charge → Jazeera
“It’s simple maths.”
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It → ’ → ?
The sheer scale of the system is mammoth, setting it apart from other digital payment interfaces around the world.
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scale → set → world
Last month, UPI processed an all-time record of 24.51 billion transactions – that’s 791 million transactions per day, worth more than $10bn daily.
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that → process → day
The government said it had processed 241.6 billion transactions in the last financial year, worth nearly $3.3 trillion, supporting 741 banks across the country.
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it → say → country
This transaction volume accounts for nearly half of all global real-time digital payment transactions daily.
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volume → account → transactions
The government frequently showcases the system, with PM Modi showing off the interface to foreign dignitaries, which is now live for merchant payments in 10 countries, including Singapore, the UAE, France, Sri Lanka and Qatar.
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which → showcase → Singapore
“UPI has emerged as the backbone of India’s digital payments ecosystem and a critical driver of financial inclusion,” the government said in a statement marking a decade of the interface last month.
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government → emerge → interface
How is the government selling this new policy?
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government → sell → policy
The decision has caused a nationwide furore among users of the digital payments system.
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decision → cause → system
The key to UPI’s widespread adoption was its lack of charges to process transactions.
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key → process → transactions
Over the past decade, several companies, including PhonePe, Google Pay and Paytm, have complained that when they process huge UPI volumes, they have limited direct monetisation of those transactions.
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they → include → transactions
However, amassing millions of users on the platform allowed them to sell many different types of services to returning customers, from cash or gold loans to insurance.
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them → amass → insurance
Under the new MDR, analysts have estimated an annual revenue pool of about 170 billion rupees ($1.7bn), with about 60 percent going to banks, 25 percent to app providers and 15 percent to aggregators.
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percent → estimate → aggregators
The Modi government is framing these changes as necessary to maintain “viable revenue” from the interface – and not as tax collected by it.
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government → frame → it
“[The MDR would be] distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem,” the government said in a statement on Tuesday following the outcry.
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government → distribute → outcry
“Revenue generated from larger merchant transactions will support banks, payment service providers and UPI application providers in expanding and improving payment infrastructure, including in rural and semi-urban areas,” the statement added.
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statement → generate → areas
The regulator said the money will support investment in innovation and cyber security.
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money → say → innovation
Why is the government being criticised?
First, for shifting the cost of running UPI infrastructure to businesses.
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government → criticise → businesses
The Retailers Association of India has warned that the new regime could discourage wider participation in the interface, where “small merchants will now think twice about whether to accept cash or UPI”.
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merchants → warn → cash
“This cuts against the government’s own formalisation agenda.
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This → cut → agenda
UPI acceptance should be incentivised, not taxed,” said Kumar Rajagopalan, chief executive officer of the association.
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Rajagopalan → incentivise → association
The move has also kicked up a political storm, with the principal opposition party, Congress, accusing the Modi government of bowing to US pressure.
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party → kick → pressure
…and 20 more, not listed.
The Aporia
