India Delays Digital Payment Fee Rollout Amid Retailer Opposition

NPCI, which operates the UPI network, said it is postponing the planned rollout of a 0.4% fee to October 15 due to the festive shopping season.

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After widespread opposition from merchants across the country, India has delayed plans to impose merchant fees on its digital payments network, aimed at making business more profitable for companies that facilitate payment services, long dominated by Google and PhonePe.

The National Payments Corporation of India (NPCI), which runs the country's Unified Payments Interface (UPI), announced on Tuesday that it was delaying the planned October 15 implementation of a 0.4 percent fee on eligible merchant transactions above 2,000 rupees (about $21), citing the festive shopping season. The fee, announced last month, marks a significant departure from India's decades-old policy of keeping UPI payments free for merchants.

The launch now comes after Diwali, one of India's biggest festivals and shopping periods, though NPCI has not specified a new date. In September alone, UPI processed 24.07 billion transactions worth 29.37 trillion rupees (about $305 billion) per NPCI.

The proposed fee was met with opposition from retailers and petrol pump operators, some of whom warned that they may not accept UPI payments if the fee is imposed.

Over the past few years, UPI has become the backbone of India's digital payment system, powering payments through apps like Google Pay, PhonePe and Paytm. Its growth is supported by the Indian government, which keeps UPI payments free for merchants and subsidizes banks and payment providers to help them cover some of the costs.

However, UPI was not always free for merchants. Banks and payment providers used to charge merchants for transactions, but the Indian government removed those fees in January 2020 as it sought to encourage more people to move away from cash, the way people have long paid for goods and services in the country. UPI has continued to grow in both transaction volume and value.

In recent years, the government has been looking to take UPI abroad. In April 2020, NPCI launched its international arm and the network is currently available in several countries including Singapore, UAE and France.

NPCI had tried to limit the impact of the new merchant fee by exempting payments of 2,000 rupees or less as well as small merchants who receive less than 100,000 rupees (about $1,033) per month through UPI. It also capped the fee at 300 rupees (about $3) for larger transactions. It said it will share the money raised among participants in the UPI ecosystem to help pay for infrastructure, cyber security and fraud prevention.

Citing industry estimates, NPCI said last month that the annual cost of implementing UPI is about 200 billion rupees (about $2.1 billion), including costs for server capacity, fraud prevention and technical support. Banks and payment companies have argued for years that they need a way to offset these costs as transaction volumes increase.

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Jagmeet covers startups, tech policy updates and other important tech-centric developments from India for TechCrunch. He was earlier working as a Chief Correspondent at NDTV.

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