NPCI told to scrap charges on UPI like government’s MDR move

BENGALURU: The Indian Bank’s Association (IBA) has written to the National Payments Corporation of India (NPCI) to remove charges like interchange fee and switching fee in line with the government move of zero merchant discount rate (MDR). TOI has seen a copy of the letter.
This could be another serious blow to the growth of digital payments on the Unified Payments Interface (UPI).Removal of these fees would mean another revenue stream getting reduced to nil, which would affect UPI apps, fintech startups and the overall pace of investment and innovation in what is the fastest-growing digital payments network.
This comes at a time when UPI has clocked over 1 billion transactions each month from October to December last year (see graphic), with companies like search major Google asking US regulators to follow the model.

PhonePe’s co-founder and CEO Sameer Nigam came out strongly on the issue and termed it “most unfortunate but inevitable”. “Zero MDR killed acquiring banks’ revenues so they can’t afford to pay issuers any interchange. Without interchange & PSP fees, issuing banks also have no skin in the game left. Sad day for the entire UPI and RuPay story,” said Nigam, whose Bengaluru-based company launched its payments business starting with UPI in 2016 and has clocked over 5 billion transactions till December.
During the IBA meeting when this decision was made and the letter drafted out, SBI was among the key players pushing for the move, people aware of the matter said. If accepted, the proposal would be beneficial for banks who are looking to reduce costs incurred because of the fast growth of these applications.
Public sector banks like SBI, which has a 5-crore customer base, have been resisting increasing interchange and switching fee as they will be paying more to other banks when their customers use their ATMs/PoS machines/UPI apps. For seven years, the interchange fee has remained at Rs 15.
“There is a loss per transaction banks face. This move will reduce that,” another source said. “IBA managing committee has decided that with respect to zero MDR on RuPay Card and UPI transactions, zero interchange is acceptable to banking industry and NPCI should be requested to consider zero interchange, zero switching fee, and zero-fee for PSPs (payments service providers) while implementing the government mandate,” the letter sent to NPCI on Thursday said.
Emailed queries sent to NPCI and SBI did not elicit any response on the matter.
Multiple payments industry executives said this would cause further damage to the industry already reeling under the pressure of zero MDR.As reported on January 10, payment players anticipate annual revenue loss could be to the tune of Rs 1,800 crore and about 2.5 lakh jobs would be impacted owing to zero MDR. Even though the Union Budget is slated to be tabled on February 1, hopes of relief from the government are low, sources added.
Companies like PhonePe and Google Pay have spent serious money to popularise UPI, which has reached a sizable scale now. Last year, PhonePe was on a Rs 500-crore marketing spree to expand its acceptance among consumer and merchants, while Google Pay spent over Rs 1,000 crore in cashbacks for the financial year ending March 2019. “All the work done by UPI so far will go back to zero. This intervention is not needed and it’s a step back. Consumer companies will go back to the new non-KYC wallet that allows Rs 10,000 monthly transaction limit. The government should reimburse these fees if they want to do away with these charges,” said a senior payments sector executive.