Large merchants may have to pay reasonable fee on UPI payments: NPCI chief

NPCI chief says move may bring in other players

Large merchants transacting on Unified Payments Interface (UPI) may incur a ‘reasonable’ fee on related-transactions in the next three years, Dilip Asbe, managing director (MD) and chief executive officer (CEO), National Payments Corporation of India (NPCI) said. 

“From the long-term perspective, a reasonable charge, not on the small merchants but the larger ones, will come. I don’t know when it will come. It may be one, two, or three years down the line,” he said, while speaking at an event organised by the Bombay Chartered Accountants’ Society (BCAS) in Mumbai. 

However, he didn’t mention what the fee would constitute.

Last year, NPCI introduced interchange fee on prepaid payment instruments (PPI)-based merchant transactions through UPI, where the PPI issuer has to be paid the interchange fee of up to 1.1 per cent if the transaction value is over Rs 2,000, depending on the type of merchant. NPCI clarified that the fee was only pertaining to PPI-based merchant transactions on UPI and the basic UPI transactions remain completely free. 99.99 per cent UPI transactions continue to be free.

Asbe said investments will be key to rope in another set of users under the digital payments mode while emphasizing that the country has an opportunity to grow ten times in the digital payments space. 

“There are 300-500 million people who will come into the financial services mode along with two or three times the existing merchants. To get them within the circle of digital services, somebody has to invest in it. Serious amount of investments will be required to convince people, who are on the edge, that digital payments are safe, provide incentives and cashbacks,” he added. 

Asbe reasoned that a merchant discount rate (MDR) or a transaction fee is currently not in place as it is one of the ways to enhance UPI’s coverage, and minimise resistance to technology. 

“While the charges have been made zero to ensure that the ecosystem adopts this wholeheartedly, there is not the slightest resistance from the ecosystem. The government has been kind enough to provide incentives to the UPI ecosystem,” he said. 

Meanwhile, he acknowledged that the threat from frauds arising out of the breach of cybersecurity is a serious one, and firms need to strengthen their systems by investing towards better cybersecurity systems and procedures. 

“The threat of cyber frauds is very real. I have heard that firms operating in the financial services space should invest close to 25 per cent of their information technology (IT) spends towards cyber and information security. Currently, that contribution may be around 10 per cent,” he added.