Inside India newsletter: The world’s largest real-time payments system will no longer be free for all

Inside India newsletter: The world’s largest real-time payments system will no longer be free for all. The world's largest payments system by volumes, India's unified payment interface, popularized cashless transactions in the country by offering free services for all.

What happened

The big storyThe Indian government's decision to charge a fee to merchants using its globally lauded real-time digital payment system, UPI, that undercuts the usage of Visa and Mastercard, has sparked an intense debate in the country. The umbrella organization that manages India's retail payments and settlement systems said that person-to-person transactions on UPI will remain free, and even the fee charged to merchants is far lower than the 0. India's digital payment system, which processes more than 1 million transactions every two minutes for free now, will start charging fees to merchants.

Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsThe Indian government is planning to impose a fee on merchants receiving payments above $20 via its payment system, unified payment interface or UPI. Welcome to the latest edition of "Inside India" — your one-stop destination for stories and developments from the world's fastest-growing large economy. "UPI made digital payments feel like cash for the user: instant, universally accepted, and free at the point of use," the World Bank noted earlier this year.

On Tuesday, the National Payments Corporation of India announced that a 0.

The wider picture

In 2020, the Indian government cut the merchant discount rate, the fee incurred by merchants for accepting payments via UPI, to zero to promote digital transactions in the country. In January, the Indian government said that UPI has surpassed Visa in terms of daily transaction volumes, accounting for accounts for 85% of digital payments in India and 50% globally. Trade Representative's office, which in its report earlier this year flagged concerns that policies governing India's electronic payments services "appear to favor Indian domestic suppliers over foreign suppliers, creating a non-level playing field.

" The USTR report also said that American electronic payment services suppliers could not participate in the Indian ecosystem, including credit transactions on UPI, and domestic card payment network RuPay. Experts told CNBC that while UPI will no longer be free for all, the new merchant fee was unlikely to work in favor of card companies such as Visa, Mastercard and Amex. The UPI payment system on average processes over 1. S. electronic payment services suppliers to participate in the UPI ecosystem.

While the government has defended the move, confident it will not hurt India's march towards a cashless economy, critics disagree.

What has been reported

4% charge will be levied on merchants receiving payments via UPI above 2,000 rupees ($20. Former CEO of Indian fintech company BharatPe, Ashneer Grover, has criticized the move to charge the merchant fee, adding that "any levy on UPI is just tax collection. "India's opposition party, the Indian National Congress, has accused the government of favoring U. S. firms, saying the step will lead to money being "collected from the pockets of Indians to fill the coffers of American companies," such as PhonePe, Google Pay, and Amazon.

Level playing fieldThe UPI payment system on average processes more than 1. The two payment apps together account for nearly 85% of UPI transactions by value and 81% by volume, as per a report by Indian brokerage Ambit Capital. A person is using the Phonepe Digital Payment app QR code while selling the National flag of India on a roadside stall ahead of India's Independence Day in Kolkata, India, on August 12, 2024. (Photo by Sudipta Das/NurPhoto via Getty Images)Nurphoto | Nurphoto | Getty Images"A 0.

"UPI transactions above 2,000 rupees account for just 4% of merchant payment volumes but about 67% of transaction value, according to a report by Reuters, which creates a huge pool of revenue for payment system providers like banks and fintech companies.

What happens next

"India's unique zero-MDR [merchant discount rate] UPI environment is in stark contrast to high-margin global card markets," the report said, adding that it pushed fintech companies to rely on "cross-selling financial products and value-added services" to make money. 8% in August, rises for 10th straight monthIndia's headline rose to 4. Inflation has been on the rise for 10 straight months in the world's fastest-growing major economy. Indian Prime Minister Modi says border peace is key to India-China tiesIndian Prime Minister Narendra Modi on Saturday said that "peace and tranquility" in the border areas is essential for developing bilateral relations with its neighbor China.

8% in August, rises for 10th straight monthPriyanka SalveIndian Prime Minister Modi says border peace is key to India-China tiesPriyanka SalveTehran won’t surrender to the U. 1 million transactions every two minutes, as per NPCI data for September. Trade Representative report had flagged concerns related to the inability of U.