Article 2: Pay wall
Why in news: The Government is considering allowing banks and payment processors to levy charges on select UPI transactionsafter amending the Payment and Settlement Systems Act, triggering debate over digital payments.
Key Details
- Legal Amendment: The Payment and Settlement Systems Act has been amended to empower the government to notify categories of UPI transactions that may attract charges.
- Proposed Scope: Charges may initially apply only to large merchants (₹1–1.5 crore turnover) and transactions above ₹2,000, covering roughly 5% of UPI transactions.
- Policy Concerns: There are fears that merchants may pass on the charges to consumers, potentially encouraging a shift back to cash-based transactions.
- Funding the UPI Ecosystem: Banks and payment processors argue that maintaining UPI is costly. The government has already provided ₹11,349 crore in subsidies since 2021, with ₹2,000 crore allocated for 2026–27.
- Debate on Sustainability: The government believes transaction charges could improve infrastructure, innovation, and cybersecurity, while critics argue that the RBI's surplus could instead support UPI without burdening users.
Legal Amendment
- The Payment and Settlement Systems Act has been amended.
- The amendment empowers the government to notify categories of UPI transactions that may attract charges.
- Earlier, UPI and RuPay debit card transactions were explicitly exempt from such charges.
Proposed Scope of Charges
- Charges may initially apply to large merchants with an annual turnover of ₹1–1.5 crore.
- They may also apply to transactions above ₹2,000.
- This proposal is expected to affect only about 5% of total UPI transactions.
- However, the amended law allows the government to expand the scope in the future.
Concerns Over Consumer Impact
- Merchants may pass the additional cost on to consumers.
- Higher transaction costs could encourage people to shift back to cash payments.
- This may slow India's progress towards a less-cash digital economy.
- It could also reduce the widespread adoption of UPI.
Funding the UPI Ecosystem
- UPI transactions have been free since 2020.
- Banks and payment processors argue that they bear the operational cost of maintaining the system.
- Since 2021, the government has provided ₹11,349 crore as subsidies.
- An additional ₹2,000 crore has been allocated for 2026–27.
Debate on Long-term Sustainability
- The government argues that transaction charges will support infrastructure, innovation, and cybersecurity.
- Critics question whether users should pay additional charges when taxpayers already fund part of the system.
- Some suggest that the RBI's annual surplus could finance UPI's development instead.
- The debate centres on balancing financial sustainability with affordable and inclusive digital payments.
Conclusion
UPI has become a cornerstone of India's digital public infrastructure, promoting financial inclusion and a less-cash economy. Any move to impose transaction charges must carefully balance the sustainability of payment providers with affordability for users. A transparent, equitable funding model that preserves public trust while ensuring continuous innovation and secure digital payment infrastructure remains essential.