73% will stop using UPI if transaction fee is charged, reveals survey

A majority 73 per cent will stop using UPI if a transaction fee is levied on it, according to an online survey by LocalCircles. 

LocalCircles on Sunday said the survey received over 34,000 responses from citizens in over 364 districts, comprising 67 per cent of male respondents and 33 per cent of women.

An increasing number of citizens are taking to UPI to make consumer-to-consumer and consumer-to-merchant payments. Whether it is paying the vegetable vendor or paying a hotel bill, Indians are scanning the UPI QR code and making their payments. The survey found that one of the key reasons the majority have taken  to UPI is because of the zero transaction fee and if a fee were to be introduced, many would reduce usage of UPI  or stop using it depending on the fee. 

The survey also found that some platforms or merchants are levying a convenience or transaction fee for UPI transactions with 37% UPI users surveyed saying that they have had one or more such instances in the last 12 months.

“Only 23 per cent of UPI users surveyed are willing to bear a transaction fee on payment. 73 per cent of those surveyed indicated that they will stop using UPI if a transaction fee is introduced,” the survey said. When asked about the frequency of UPI usage, the survey found that 1 in 2 UPI users conduct over 10 transactions every month.

“37 per cent of UPI users surveyed claim that they have experienced a transaction fee being levied on their UPI payment once or more in the last 12 months,” the survey report said.

Financial technology (fintech) companies last week raised the contentious issue of implementing a merchant discount rate (MDR) for Unified Payments Interface (UPI) transactions during an open house session  with Finance Minister Nirmala Sitharaman. The MDR on UPI payments has been a longstanding demand from  the fintech industry, asserting they don’t generate revenue from such transactions. MDR is the rate charged to  a merchant for payment processing services on various payment instruments.

In August 2022, the Reserve Bank of India (RBI) released a discussion paper proposing a tiered structure charge  on UPI payments based on different amount bands. Following the RBI discussion paper, the finance ministry  clarified that there was no proposal to levy charges on UPI transactions. However, consumers from across India  have been reporting some platforms charging a convenience or transaction fee for UPI payments. 

One of the  most common examples cited by consumers frequently is the Rs 20 convenience fee levied by IRCTC for UPI  payments. Several other payment gateways have also been reported to be charging a transaction fee for UPI  transactions from merchants, some of whom end up passing the same to the consumer.

The United Payments Interface (UPI) transaction value reached Rs 18.28 lakh crore in February 2024 with transactions per day increasing from 39.3 crore in January to 41.7 crore last month. This  is despite the curbs put by RBI on Paytm, one of the top three platforms in the country for UPI transactions.

The National Payments Corporation of India (NPCI) has asked payment apps such as Google Pay, Paytm, PhonePe, etc., and banks to deactivate the UPI IDs and numbers that have not been active for more than one year. The daily payment limit for UPI transactions is Rs 1 lakh maximum, as per NPCI. However, RBI raised the transaction limit for UPI payments to hospitals and educational institutions to Rs 5 lakh on December 8, 2023, to broaden the use of UPI payments.

From 1 January 2024, there is a 1.1 per cent interchange fee on certain merchant UPI transactions above Rs 2,000, made using prepaid payment instruments (PPI) like online wallets.

"So, on a transaction amount of ₹2,500 the merchant receiving this money will pay a fee of Rs 27.5. But the merchant will not be charged if it’s a bank-to-bank transfer through UPI. These charges only apply if the money has been sent from a pre-paid wallet like a PayTM wallet or PhonePe wallet, where you add money beforehand to make faster payments. This is an interchange fee that merchants will have to pay, to cover the transaction cost. Transaction cost involves the maintenance of banking infrastructure necessary to make UPI payments seamless and round-the-clock," said Fi Money in a note.

To curb rising instances of online payment fraud,  a four-hour time limit would be applicable each time a user initiates the first payment exceeding Rs 2,000 to another user with whom they have not previously transacted. UPI members will be able to soon go live with the UPI ‘Tap and Pay' functionality.