Deepak Shenoy, CEO of Capitalmind, has publicly expressed his reservations regarding the application of a percentage-based Merchant Discount Rate (MDR) on transactions made through the Unified Payments Interface (UPI). Shenoy advocates for a fixed fee structure, specifically suggesting a maximum cap of ₹5 per transaction, as a fairer approach to digital payments.
The Debate Over UPI Transaction Fees
The introduction of MDR on certain UPI transactions has sparked considerable debate within India's financial and merchant communities. Traditionally, UPI person-to-person (P2P) and person-to-merchant (P2M) transactions were free for users, contributing significantly to its widespread adoption. However, recent policies have allowed for interchange fees on P2M transactions over ₹2,000 when funded by prepaid payment instruments (PPIs) like wallets.
Shenoy's argument centers on the disproportionate impact a percentage-based fee can have, especially on small and medium-sized enterprises (SMEs) dealing with higher-value transactions. A percentage fee, even a small one, can quickly accumulate to a substantial amount, potentially eroding profit margins for merchants and discouraging the use of digital payment methods.
Why a Flat Cap?
According to Shenoy, a flat cap of ₹5 would offer several benefits:
- Predictability for Merchants: Businesses would know their exact cost per transaction, regardless of the amount, aiding in better financial planning.
- Encourages Higher Value Transactions: A fixed fee means the percentage cost diminishes as the transaction value increases, making UPI attractive for larger purchases.
- Fairness: It prevents smaller merchants from bearing a disproportionately higher burden compared to larger enterprises, fostering a more inclusive digital economy.
Shenoy argues that the primary objective of UPI should remain accessibility and affordability to continue driving India's digital transformation. While payment service providers incur costs, he believes these should be recovered in a manner that doesn't impede the growth of digital transactions.
Impact on India's Digital Payments Landscape
The discussion around UPI fees is critical for the future of digital payments in India. UPI has been a revolutionary platform, enabling millions to conduct seamless transactions. Any changes to its fee structure need careful consideration to balance the sustainability of payment infrastructure providers with the overarching goal of financial inclusion and digital adoption.
Shenoy's proposal highlights a common concern among stakeholders who fear that an overly aggressive fee structure could slow down the momentum of UPI adoption, particularly among merchants who have increasingly embraced the platform for its zero-cost advantage.