The proposed Merchant Discount Rate (MDR) on certain UPI transactions has sparked widespread discussion across the country, with questions being raised over its potential impact on consumers and merchants. MobiKwik co-founder Upasana Taku, however, said the proposed charges would not directly affect ordinary customers.
In an exclusive interview with India TV, Taku said there would be no charge on person-to-person (P2P) UPI transactions. She also said consumers would not have to pay any fee for essential payments such as electricity, telephone and gas bills.
How will the proposed UPI charges work?
Explaining the mechanism, Taku said payment companies would not need to separately identify merchants for applying the proposed charges, as all payment companies follow a common merchant KYC onboarding process and transactions are routed through the National Payments Corporation of India (NPCI) network.
She compared NPCI's role in India's UPI ecosystem with the payment switches used by international card networks such as Visa and Mastercard.
According to Taku, merchants registered with payment companies go through a standard merchant KYC process, while transactions are processed through the NPCI network.
Small vendors may remain outside the merchant category
Taku also pointed out that many small vendors, including vegetable sellers, paan shops and other tiny businesses, are not registered as formal merchants because they may not have fixed establishments or registrations such as Udyam or GST.
She said such transactions would fall under the P2P or P2PM categories, where no charge would apply. She added that even if a small shop receives around 100 digital payments a day, only a few of those transactions may be above Rs 2,000.
No consumer charge on fuel and essential services
According to Taku, payments for essential services such as electricity and gas bills, as well as fuel purchases, would not result in a charge being passed on to consumers.
She said these transactions would attract a flat fee of Rs 5, which would be payable by the biller or merchant rather than the consumer. For instance, whether a consumer pays Rs 5,000 for fuel or Rs 1 lakh towards a credit card bill, the fee would be borne by the biller or merchant, she said.
The proposed 0.14 per cent charge, according to Taku, would instead apply to certain high-value transactions such as flight and hotel bookings and purchases of products such as clothes or televisions.
UPI companies' revenue model
Taku also discussed the revenue challenges faced by payment companies. She said payment companies have not been earning direct revenue from UPI transactions for several years and instead generate income through other services, including wallets, bill payments and card transactions.
At the same time, processing UPI transactions involves significant costs related to servers, engineering, risk management, fraud prevention and cybersecurity.
Taku said applying charges to a limited category of UPI transactions could provide payment companies with additional resources to invest in infrastructure and cybersecurity.
She also stressed that digital payments still need to expand further in rural areas and smaller cities.
No need to change UPI QR codes
Addressing speculation that merchants may need to replace their existing UPI QR codes, Taku said there would be no need to do so.
She said all QR codes are part of the same UPI ecosystem and the proposed charging mechanism would remain uniform across the system.
Taku also claimed that the proposed charges would not have a major impact on the growth of digital payments, arguing that consumers would not have to pay an additional fee to use UPI.
She dismissed concerns about a possible return of the cash economy, saying people had become accustomed to digital payments and that a large number of people still need to be brought into India's digital payments ecosystem.
Will US companies benefit?
Asked whether the proposed UPI charges could benefit US companies, Taku said the UPI ecosystem includes companies with both Indian and US ownership interests.
She said the introduction of a revenue stream from UPI could create opportunities for Indian payment companies to expand their businesses and compete more effectively.
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