UPI fee up to Rs 2000 is free; Here’s what happens to transactions beyond that

The government today announced that banks or system providers cannot enforce any direct or indirect charges on a sender or receiver conducting transactions  of up to Rs 2000 through Unified Payments Interface (UPI) platform.

According to a government gazette notification, zero charges can be imposed on under Rs 2,000 payments made through RuPay-powered debit cards either.

This comes as the government is reportedly reviewing a proposal to implement a Merchant Discount Rate (MDR) on specific high-value UPI transactions made to large merchants above Rs 2,000, but any such charge would be levied on eligible businesses rather than on consumers. 

What is the Proposal?

The proposed MDR rate to be implemented could be below 0.5%, although the final rate and framework have not been released. The proposal is aimed at large businesses rather than common users or small merchants. Also, the Rs 2,000 charge does not imply that customers making a UPI payment above that amount would automatically be charged a fee.

How does UPI Currently Functions?

UPI platform is controlled by the National Payments Corporation of India (NPCI), which regards it as a system that facilitates users to link multiple bank accounts through a UPI-enabled application and make bank-to-bank and merchant payments. The UPI pilot was launched on April 11, 2016. 

Currently, there is no general MDR on regular UPI transactions. The government has supported the zero-MDR model as part of its bid to facilitate digital payments, while banks and payment-service providers bear the costs of its functioning.

Why is MDR Being Discussed?

The discussion comes amid the quick expansion of UPI and the soaring cost of sustaining the payments infrastructure. The new proposal,  if approved and implemented, is centred on establishing a potential revenue stream from large merchants while keeping ordinary consumer payments unaffected.

What about Payments beyond that?

Currently, there is no government notification charging a fee on consumers for UPI payments above Rs 2,000.

Any implemented revision would require formal notification mentioning the applicable merchants, transaction nature and MDR rate.