RBI Governor Calls UPI Merchant Fee Proposal 'Very Premature'

Mumbai: Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday dismissed as 'very premature' any proposal to introduce merchant charges on Unified Payments Interface (UPI) transactions, while candidly noting that the cost of running the ubiquitous payments system has to be borne by someone.

His remarks, made on the sidelines of a banking event, come as the central bank and the government weigh the future of UPI, which has become the backbone of India's digital economy. The system, which processes billions of free transactions every month, has been under scrutiny for its long-term financial viability.

No Immediate Change in User Costs

Das clarified that no formal proposal to levy charges on UPI merchants is currently on the table. 'This is a very premature discussion,' he said, adding that the central bank has not received any concrete recommendation from the National Payments Corporation of India (NPCI) or any other stakeholder.

However, he did not mince words about the underlying economics. 'Someone has to pay for the system,' the Governor stated, pointing out that the infrastructure, maintenance, and security of UPI involve significant costs. His comments are likely to fuel speculation about the future pricing model of the platform.

The Cost of Free

UPI has grown exponentially since its launch in 2016, with monthly transaction volumes crossing the 10-billion mark in recent months. The service is free for users, and merchants do not pay a merchant discount rate (MDR) on most transactions, a policy that has been credited with driving adoption but criticized for burdening banks.

Banks and payment companies have long argued that the absence of MDR makes UPI unsustainable for them, especially as volumes climb. The RBI had earlier capped MDR at zero for UPI, effectively making the service free for all, a move that was welcomed by consumers but strained the balance sheets of payment firms.

Das did not indicate any timeline for revisiting the fee structure, but his choice of words suggests the central bank is aware of the financial strain. 'We have to find a sustainable model,' he said, without elaborating on potential mechanisms.

Industry Reactions Mixed

Fintech executives and banking analysts have responded cautiously to the Governor's statement. Some argue that a nominal MDR on high-value merchant transactions could be a balanced approach, while others warn that any charge could dampen the digital payments momentum.

Consumer groups, meanwhile, have been vocal in opposing any levy, fearing it could trickle down to end-users. The government has so far remained silent, but sources indicate that a committee is examining the cost structures of UPI, including the possibility of a tiered pricing model.

What Lies Ahead

The RBI's stance is a clear signal that the status quo may not hold indefinitely. For now, UPI remains free for merchants and consumers, but the Governor's remarks have opened a fresh debate.

All eyes will now be on the central bank's upcoming monetary policy review, where Das might provide more clarity on the issue. Until then, the digital payments ecosystem is bracing for a possible shift in how India pays.