The companies believed that merchant discount rates (MDRs), similar to credit cards, may be required for long-term sustainability.
Google Pay and PhonePe are right now dominating the UPI market with Paytm facing heat from the authorities. 80% of the UPI market is now led by Google Pay and Walmart-owned PhonePe as Paytm share keeps on plunging. As UPI transactions reach a new height in India, debate about charging fees on merchant transactions has also been renewed. Although the government has denied imposing fees on UPI previously, a report by Times of India suggests that we may soon see a shift in that approach.
As per the report, Fintech giants are once again raising the concerns about the lack of revenue in UPI despite customer acquisition costs. The companies believed that merchant discount rates (MDRs), similar to credit cards, may be required for long-term sustainability. The same issue was raised by fintech companies in a meeting with the finance ministry. A fintech executive who attended the meeting affirmed Times of India that "Zero MDR (merchant discount rate) eating up business models was a point raised in the meeting with FM."
Executives from fintech companies believe that introduction of fees could back smaller players to rival and attract bigger platforms with high transaction volumes. The rivalry and new players can benefit the overall UPI ecosystem.
Digital banking consultant Parijat Garg told TOI that all UPI players are currently burning cash and with no incentive, they would not be interested in acquiring new customers. The fees on UPI merchant transactions will encourage smaller businesses and incentivise smaller players to give more attention to acquiring new customers.
As of now, the government's stance on the UPI fees remains unclear.
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