UPI fee from October 15: RBI governor says new charge is unlikely to hurt transaction volumes

RBI Governor Sanjay Malhotra said on Wednesday that the introduction of a small merchant discount rate on certain UPI transactions is unlikely to have a major impact on the volume of digital payments.

Speaking to reporters after the RBI's October monetary policy review, Malhotra said the central bank does not currently expect a decline in UPI transaction volumes following the introduction of the new MDR framework.

“As of now, we do not see any drop in volumes. And I don't personally think that a small fee will have a major impact on the volumes,” he said.

0.4% MDR for eligible transactions above Rs 2,000

The government has allowed the introduction of a 0.4% merchant discount rate on eligible digital transactions above Rs 2,000 from October 15.

MDR is a fee charged within the payments ecosystem in connection with merchant transactions. Under the new framework, the charge is not intended to be directly passed on to consumers.

This means customers will not have to pay an additional fee for eligible UPI payments. The move marks a limited shift from UPI's long-standing zero-MDR model for certain higher-value merchant transactions.

RBI does not expect major fall in volumes

Malhotra said the decision to introduce the charge had already been taken and indicated that the RBI did not expect it to materially reduce the use of UPI.

The government's stated objective is to support the long-term sustainability of digital payments while keeping UPI free for consumers.

RBI governor comments on bank credit and liquidity

Malhotra also said bank credit growth is expected to remain strong and support broader economic activity.

On liquidity, he said the banking system was unlikely to remain in the high surplus seen in recent weeks for an extended period.

He also said the RBI remained conscious of potential pressure on asset quality at non-bank lenders amid high liquidity, but did not expect such concerns to become a major issue.

External pressures and balance of payments

Malhotra said external headwinds had affected capital flows and created some pressure on the current account, but described the issue as temporary.

He expressed confidence that India's balance of payments would return to surplus, citing several factors supporting the country's external position.

He also said the RBI was confident that banks would deploy funds raised through the FCNR(B) scheme prudently. Banks raised nearly USD 13.3 billion in deposits from the Indian diaspora under the concessional swap facility.

The introduction of MDR represents a limited change to the economics of UPI merchant payments. While consumers are not being charged directly, the fee affects the way costs are distributed among participants in the digital payments ecosystem.

The RBI's assessment is that a 0.4% charge on eligible transactions above Rs 2,000 will not materially alter consumer behaviour or reduce overall UPI volumes. Actual transaction data after the October 15 implementation will provide a clearer indication of its impact.

The policy also reflects the broader challenge of maintaining the financial sustainability of India's rapidly expanding digital-payment infrastructure while preserving UPI as a low-cost payment option for consumers.