Government Clarification on Keeping UPI Payments up to ₹2,000 Fee-Free

The government has clarified that banks or payment system providers cannot levy any charges on the payer or the payee for UPI payments up to ₹2,000. The same provision will also apply to RuPay debit card transactions up to ₹2,000.

Legal Basis:

This clarification was issued amidst discussions regarding proposed or ongoing amendments to the Payment and Settlement Systems Act, 2007. Its objective is to address apprehensions regarding potential charges on small digital payments.

Relationship between UPI and MDR:

According to the government, UPI-based P2P transactions will remain free for consumers. Furthermore, under the current system, no fixed Merchant Discount Rate (MDR) applies to UPI. Should an MDR-related framework be established in the future, its scope and nature of implementation could differ.

Significance for Small Merchants and Consumers:

Keeping low-value digital transactions fee-free allows small merchants, shopkeepers, and consumers to use digital payments without incurring additional transaction costs. This can facilitate the widespread adoption of digital payments.

Provisions for RuPay Debit Cards:

RuPay debit card payments up to ₹2,000 have also been included in this fee-free arrangement. Thus, clarity regarding charges has been provided for low-value transactions involving domestic card payment networks alongside UPI.

Significance for UPSC:

This topic relates to the digital economy, financial inclusion, digital payments, FinTech, the banking system, and payment and settlement systems. For UPSC purposes, it is crucial to understand the interlinkages between UPI, MDR, RuPay, the cost of digital payments, and the Payment and Settlement Systems Act, 2007. Furthermore, this policy reflects the broader economic discourse surrounding the expansion of digital payments and the need to keep costs low for low-value transactions.