UPI transaction fee debate resurfaces as PhonePe & Google Pay cash in on Paytm's fall
PhonePe and Google Pay in the UPI market has renewed the debate about charging fees on merchant transactions. While the government has previously denied plans for UPI fees, recent discussions suggest a shift.
According to a report by Times of India, fintech companies are raising concerns about the lack of revenue in UPI despite customer acquisition costs. They argue that a system like credit cards, with merchant discount rates (MDRs), is needed for long-term sustainability.
“Zero MDR (merchant discount rate) eating up business models was a point raised in the meeting with FM,” a fintech executive who attended the meeting, told TOI.
“Some of us discussed issues related to UPI transactions made via prepaid payment instruments with NPCI although there has been no conclusive outcome,” another fintech executive told TOI.
Introducing fees could incentivize smaller players to compete and attract bigger platforms with high transaction volumes. This competition could benefit the overall UPI ecosystem.
However, the government's stance remains unclear. Last year, they rejected a proposal for tiered UPI charges. NPCI, the governing body, has also declined comment.
80 per cent of the UPI market is dominated by Google Pay and Walmart-owned PhonePe. Paytm's UPI transactions dropped from 1.4 billion in February to 1.3 billion as a result of RBI limitations.
Fees on UPI merchant transactions will encourage smaller businesses to focus more on acquiring new customers, digital banking consultant Parijat Garg told TOI.
“All UPI
