49
Payments Regulation in Asia
As of 2022, however, the zero-MDR regime was challenged as banks and government UPI operators sought compensation for developing and operating the UPI ecosystem. In August 2022, the RBI released a discussion paper on regulating various payment system-related charges, including imposition of MDR on UPI transactions. The central bank questioned that if UPI transactions were to be charged, should it be determined by the regulator or market forces. 125 By April 2023, NPCI announced that UPI transactions would attract a series of interchange fees depending on the industry. The fees for UPI-based PPI transactions are characterized below: • 1.1% interchange fee for high-ticket (Rs 2,000) 126 • 0.5% interchange fee for fuel transactions • 0.7% interchange fee for telecom, utilities, post office, education, and agriculture transactions • 0.9% interchange fee for supermarket • 1% interchange fee for mutual fund, government, insurance, and railways These fees are paid by the merchant and received by the customer’s bank. These fees will apply to all retail transactions within each but exempts bank account to bank account transactions on UPI and transactions below the cap for unlisted industries. The fee will apply to transactions performed on apps such as Paytm, PhonePe, Amazon Pay, Freecharge, etc. The NPCI clarified that the interchange fee is aligned with the recommendations from the World Bank to set UPI interchange at 1.15%. 127 With the introduction of interchange fees for UPI usage, the cost of acceptance for UPI is less competitive against debit and credit transactions. However, with credit uncapped and debit caps applying to all transactions, while UPI interchange fees apply only to a subset, it’s anticipated that UPI’s growth will not slow.
125
https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=21082
126 https://www.businesstoday.in/industry/banks/story/upi-payments-which-transactions-will-attract-npcis-11-interchange- fee-check-details-here-375271-2023-03-29 127 https://www.businesstoday.in/industry/banks/story/upi-payments-which-transactions-will-attract-npcis-11-interchange- fee-check-details-here-375271-2023-03-29
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