Banks and system providers are now prohibited from charging fees on UPI and Rupay debit card transactions up to Rs 2000, as per a finance ministry notification. This move clarifies that while person-to-person UPI transactions remain free, potential Merchant Discount Rates (MDR) may be introduced for transactions above Rs 2000 specifically for merchants, aimed at supporting the digital payment infrastructure's sustainability.

Banks and system providers are now prohibited from charging fees on UPI and Rupay debit card transactions up to Rs 2000, as per a finance ministry notification. This move clarifies that while person-to-person UPI transactions remain free, potential Merchant Discount Rates (MDR) may be introduced for transactions above Rs 2000 specifically for merchants, aimed at supporting the digital payment infrastructure's sustainability.

Banks and system providers are now prohibited from charging fees on UPI and Rupay debit card transactions up to Rs 2000, as per a finance ministry notification. This move clarifies that while person-to-person UPI transactions remain free, potential Merchant Discount Rates (MDR) may be introduced for transactions above Rs 2000 specifically for merchants, aimed at supporting the digital payment infrastructure's sustainability.

The finance ministry has notified that banks and system providers now cannot impose charges on UPI an Rupay powered debit card payments or transactions of upto Rs 2000. The new rule amends the earlier provision that prevented banks from charging fees on all digital payments via the Unified Payments Interface or UPI.

UPI has been largely free of charges since its introduction in 2019 and has no amount limit.

The entire system was operating on a zero-merchant discount rate. A Merchant Discount Rate, or MDR, is a fee that is charged for processing a digital payment.

The new rule now opens up a possibility of charges on transactions above Rs 2000.

So who will this affect?

The notification specifies that no bank or system provider can impose a charge on a person who uses the electronic modes of payment. 

The notification does not say that a UPI transaction above Rs 2000 will now be charged a fee. It will remain free for person-to-person transactions.

The government clarified last month that the consumers will not be charged for making payments using UPI.

The Merchant discount rate that may be imposed will only be applicable to transactions above the threshold (Rs 2000) for merchants. There is currently no blanket MDR on merchants.

"If introduced, MDR charges will apply only to a limited set of merchant transactions above a certain threshold and at a nominal rate," the notification said.

The new rule comes as the government argues that the system needs sustainable revenue as spending on infrastructure, cybersecurity and fraud prevention rises.

Any new MDR that would be introduced could be nominal and stay in the range of 0.25 or 0.4 per cent and would also stay within the merchant or a payment ecosystem.

How the merchant or banks recover that cost is what may change.

The UPI and Services Steering Committee of the National Payments Corporation of India (NPCI) will convene this week to decide the MDR rates for digital transactions, sources said. The committee will make the final call on which merchants will have to pay the fee.

The industry is expecting to levy around 25 to 30 bps for transactions above Rs 2000, Moneycontrol reported.

In earlier reports. sources said that the government is mulling a levy of 0.3 to 0.5 per cent as MDR for businesses with annual turnover exceeding Rs 1.5 crore. 

Estimates say that a 25 bps levy above the threshold could generate around Rs 13, 000 crore annually in MDR revenue.

UPI, launched a decade ago, processed 24.51 billion ​transactions worth 29.82 trillion rupees in August. Google Pay and Walmart's PhonePe accounted for about three-fourths of monthly transaction volumes.

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