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IIT Bombay Report Urges Sharp Cut in UPI Merchant Fees
A report from IIT Bombay says some businesses should pay a smaller fee when customers use UPI.
The committee’s framework sets a 0.40% fee for merchant transactions above Rs 2,000.
The report argues the fee should instead be 0.08%.
It suggests that app companies receive 0.06% and payment service providers receive 0.02%.
It says banks should use some of the benefits they get from current and savings accounts to support UPI.
The report also questions a Rs 300 cap on certain electronic payment charges.
It suggests a fee for online purchases and lower fees for credit-card payments.
Trade bodies have asked the government to roll back the UPI charge.
An IIT Bombay report proposes cutting merchant discount rate (MDR) on UPI transactions from 0.40% to 0.08%.
The UPI Steering Committee set a 0.40% MDR for merchant transactions above Rs 2,000, with the framework due to start October 15, 2026.
The report proposes allocating 0.06% to third-party app providers and retaining 0.02% for payment service providers.
It argues banks should fund UPI operations from benefits associated with CASA deposits, rather than MDR revenue sharing.
The report also recommends a digital payment fee for online merchant transactions and lower credit-card MDR.
- Who
- IIT Bombay report authors, banks, payment service providers, third-party app providers, and trade bodies.
- What
- The report recommends reducing UPI merchant MDR and changing how payment fees are funded and shared.
- Where
- The article does not specify a location.
- When
- The UPI Steering Committee set the 0.40% framework on September 15, scheduled to take effect October 15, 2026; the report's publication date is not stated.
- Why
- The report argues banks can support UPI using benefits from CASA deposits and says service charges should reflect the cost of providing the service.
IIT Bombay report
NPCI proposal and trade-body response
Third-party app provider share
IIT Bombay report
The report recommends a 0.06% MDR share for third-party application providers.
NPCI proposal and trade-body response
NPCI proposed a 0.08% share for third-party application providers.
UPI merchant charge
IIT Bombay report
The report recommends reducing the MDR to 0.08% and says banks should not rely on MDR revenue sharing to support UPI.
NPCI proposal and trade-body response
The UPI Steering Committee set a 0.40% MDR for merchant transactions above Rs 2,000; trade bodies have asked the government to roll back the charge.
Key facts
- Current committee-set MDR
- 0.40% for merchant transactions above Rs 2,000
- Report's proposed MDR
- 0.08%
- Proposed TPAP share
- 0.06%, compared with the 0.08% proposed by NPCI
- Proposed PSP share
- 0.02%
- Framework effective date
- October 15, 2026
- CASA net interest margin cited
- More than Rs 4.85 lakh crore in FY26
- Suggested bank contribution
- About 3% of the funds effectively sacrificed by CASA depositors, estimated at around Rs 15,000 crore
- Other recommendations
- Introduce a digital payment fee for online merchant purchases and reduce credit-card MDR
Quotes
IIT Bombay report
The report discussing proposed UPI fees and bank funding.
“Banks earn substantial interest margins from the CASA depositors. They should use the same towards running and improving the UPI ecosystem and not rely on MDR revenue sharing from offline transactions.”
businesstoday.in
“raises a vital question of reasonableness of fixing such a high cap as service charge”
businesstoday.in
Sources
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