Apps oppose platform fee ban on UPI bill payments under new MDR norms

UPI apps say their Rs 1 share from a Rs 5 MDR on larger bill payments will not cover Bharat Bill Payment System commissions, while smaller transactions earn nothing at all

Third-party UPI apps have objected to the ban on platform fees under the new merchant discount rate (MDR) framework, saying it will leave them losing money on every bill payment they process through the Unified Payments Interface (UPI), sources said.

 

The objection was raised during the National Payments Corporation of India (NPCI)'s UPI Services and Steering Committee meeting on Tuesday, according to a person with knowledge of the matter. 

 

UPI apps have so far charged users a platform fee of ₹3-5 on bill payments, such as electricity, water, gas and credit card bills, processed through the Bharat Connect platform, formerly known as Bharat Bill Payment System (BBPS). 

 

NPCI’s new merchant discount rate (MDR) framework, set to take effect on October 15, removes that option entirely.  

 

“No, UPI App providers shall not charge platform fee or any other charge for any payment made through UPI. UPI applications are explicitly restricted from levying platform fees on UPI transactions,” NPCI had clarified in a list of FAQs. 

 

“Third-party UPI apps are going to have a problem processing bill payments through UPI. Since platform fees are banned, they cannot charge any fee to the customer directly. They already have to pay commission to BBPS which is higher than what they get through UPI MDR,” a senior fintech executive said. 

 

App players are hoping to offset the losses on bill payments to  their share of the 0.4 per cent MDR on other person-to-merchant (P2M) payments above ₹2,000, industry sources said.

 

Under the new framework, bill payments above ₹2,000 carry a flat MDR of ₹5 per transaction, of which UPI app providers get ₹1, with the rest set to be distributed among other participants in the UPI chain.

 

Bill payments of '2,000 or less carry no MDR, so apps earn nothing on these transactions. 

 

Once commissions and processing costs are accounted for, apps will spend more on each bill payment than they earn from it, industry sources said. 

 

During the NPCI’s UPI Services and Steering Committee meeting on Tuesday, UPI apps had objected to the decision to ban platform fees for processing bill payments, a person with knowledge of the matter said. 

 

The platform fee ban covers all UPI payments, so apps cannot charge users even on bills of ₹2,000 or less, which carry no MDR. 

Key numbers

• ₹3-5 platform fee currently charged by UPI apps
• October 15 is when the new MDR framework takes effect
• 0.4 per cent MDR applies to P2M payments above ₹2,000
• ₹5 flat MDR applies to bill payments above ₹2,000
• Zero MDR applies to bill payments of ₹2,000 or less