NEW DELHI/MUMBAI, Aug 4 (Reuters) - India has moved a step closer to reintroducing merchant fees on transactions made through its popular Unified Payments Interface (UPI) after proposed changes to the country's payments laws were introduced in parliament on Tuesday.
UPI, one of the world's largest real-time payments networks, processed 23.6 billion transactions worth 29.9 trillion rupees ($313.5 billion) in July, according to official data. Walmart's PhonePe and Alphabet's Google Pay dominate payments via
UPI.
Industry executives have long argued that growth in digital payments has become harder to sustain because payment firms earn no fee on UPI transactions, limiting their ability to invest in the ecosystem.
An amendment to India's Payment and Settlement Systems Act, tabled in parliament by Finance Minister Nirmala Sitharaman, would allow the introduction of a merchant discount rate (MDR) on digital payments, according to industry and regulatory sources.
The sources said the change creates a legal basis for charging an MDR, but no decision has yet been made on the level of fees or where they would apply.
The sources declined to be identified because they were not authorised to speak to the media. India's finance ministry, central bank and national payments authority did not immediately respond to requests for comment.
An MDR is a fee paid by merchants to banks and payments service providers for processing digital transactions. While credit cards in India typically attract an MDR of about 1.5% and debit cards up to 0.9%, UPI transactions are currently free for merchants.
TWO APPROACHES BEING CONSIDERED
Policymakers are considering two broad options, according to two sources with direct knowledge of the matter: charging an MDR on transactions above a specified threshold or levying fees based on a merchant's annual turnover.
One proposal would apply charges only to large merchants while keeping UPI payments free for consumers and small businesses, the sources said.
The government is considering a proposal to impose an MDR of 0.3% to 0.5% on transactions above 2,000 rupees ($20.97) for merchants with annual turnover exceeding 15 million rupees, according to a government source.
A report by Jefferies on Tuesday said transactions above 2,000 rupees account for just 4% of merchant payment volumes but about 67% of transaction value.
The brokerage estimated such a move could create a revenue pool of 50 billion to 100 billion rupees for the payments industry and benefit companies including Paytm and Pine Labs.
($1 = 95.3800 Indian rupees)
(Reporting by Nikunj Ohri in New Delhi and Ashwin Manikandan in Mumbai. Additional reporting by Jaspreet Kalra and Ira Dugal. Editing by Mark Potter)
