India moves to give its instant payments network a business model
The legislation lays the groundwork for a potential overhaul of India's zero-merchant-discount-rate regime, under which businesses have not paid fees to accept UPI payments since 2020.
India is implementing new legislation that could alter the business model of its widely-used Unified Payments Interface (UPI) payments network, operated by the government. The legislation could pave the way for merchants to pay fees on certain UPI transactions for the first time since 2020, when merchant discount rates (MDR) were scrapped to boost UPI adoption.
UPI processed 23.66 billion transactions worth ₹29.88 trillion ($313.4 billion) in July, according to the National Payments Corporation of India (NPCI). The proposal comes after years of debate between the finance ministry, central bank, and payment companies over funding the network. Banks and fintech firms argue that the free merchant payments policy is becoming unsustainable as transaction volumes and infrastructure costs rise.
The legislation leaves details of the new fees to be determined later, but market analysts believe it could create a significant new revenue stream for India's payments industry. Jefferies estimates that introducing merchant charges on higher-value UPI transactions could generate ₹50 billion to ₹100 billion ($525 million to $1.05 billion) annually by fiscal 2028, assuming a fee of 15-30 basis points.
The legislation could also mark the first step toward a new revenue source for the country's digital payments market leaders, such as Walmart-owned PhonePe and Google Pay, which together handle nearly 80% of UPI transactions.
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