A modest fee is all it will take to sustain the UPI ecosystem

livemint.com:

₹2,500 crore a year. Unless we can find them a better way to meet their costs, I worry that there will come a time when the system becomes unsustainable. Credit card companies charge an MDR to help offset the costs they have to incur in guaranteeing payments.

Merchants only accept credit card payments because of the assurance that, regardless of whether or not the purchaser pays his credit card bill, the card network will always ensure they get paid. This shifts the risk of customer fraud onto the card network, which, partly in order to offset it, charges a percentage of the transaction’s value as its fee. While this might make sense in the context of credit cards, it doesn’t translate to UPI in quite the same way in our current context.

UPI has been designed differently from credit cards, and, as a result, the same rationale doesn’t apply. UPI transactions are processed in real time, with the bank account of the transferor being debited at the same time as—and by the same amount that—the account of the receiver is credited. As a result, TPAPs do not worry about payment risk in the same way that card companies do.

That being the case, charging fees as a proportion of the value of a UPI transaction is not warranted, since their risk does not vary proportionately with the value of the purchase. The UPI ecosystem just needs to earn enough revenue to meet the cost of running the UPI system, plus a reasonable profit on top of that. Surely, we can find a way to do this without placing a disproportionate burden on the customer.