Key Takeaways
- India's National Payments Corp will charge a 0.4% merchant fee on UPI transactions above 2,000 rupees.
- Retailers and brokers warn the new fee could reduce margins and encourage cash transactions.
- A public-interest lawsuit has been filed in India's Supreme Court challenging the new framework.
India's National Payments Corp has announced a new fee structure for merchant payments under its Unified Payments Interface (UPI), drawing opposition from retailers and brokers. The new fee will charge a 0.4% merchant fee on transactions above 2,000 rupees, ending six years of zero-cost payments.
The move has been supported by the federal government and central bank, but it has raised concerns among businesses, particularly ahead of the crucial festival period in October and November, when Indians typically boost spending.
Kumar Rajagopalan, CEO of the Retailers Association of India (RAI), stated that the fee could encourage merchants to favor cash transactions. 'Small merchants will now think twice about whether to accept cash or UPI,' he said in a statement. Many festive-season purchases exceed 2,000 rupees, making cash the path of least resistance for retailers operating on thin margins.
The new framework could also challenge the economics of broking. Nithin Kamath, CEO of Zerodha, one of India's largest retail stockbrokers, warned that if every UPI transfer starts carrying an additional cost, it could be difficult to absorb indefinitely. Capital-market transactions, including payments to stockbrokers, mutual funds, and securities dealers, will attract a merchant fee of 0.02% of transaction value, capped at 300 rupees.
The new fee structure has not gone unchallenged. A public-interest lawsuit has been filed in India's Supreme Court by a lawyer, seeking suspension of the new framework. The lawyer argues that it was introduced without adequate statutory authority, transparency, or safeguards for merchants and consumers.
The Clothing Manufacturers Association of India (CMAI) also expressed concerns, stating that the change could not have come at a more challenging time. President Santosh Katariya said, 'Consumer-facing businesses are trying to revive demand and improve margins.'
The introduction of these fees is part of a broader consultation process, as reported by sources. The federal government and central bank are consulting banks and payment firms on fees for large UPI payments.
While the new fee structure is expected to generate additional revenue for the payment system, it has sparked significant debate and opposition from various sectors of the economy. The impact on consumer behavior and business operations remains to be seen.
Small merchants will now think twice about whether to accept cash or UPI.
Kumar Rajagopalan, CEO, Retailers Association of India
If every UPI transfer starts carrying an additional cost, irrespective of whether the customer actually trades, I don’t see how we can absorb this indefinitely.
Nithin Kamath, CEO, Zerodha
