A new fee on larger payments through India’s popular Unified Payments Interface (UPI) was supposed to take effect next week. Instead, the rollout has been pushed back several months, underscoring just how difficult it can be to change the economics of a payments system that has become essential to everyday commerce.
UPI payments have been free since the system was introduced, but last month the National Payments Corporation of India (NPCI) announced it could impose a 0.4% fee on merchants for transactions exceeding 2,000 rupees, or about $21. The announcement drew opposition from India’s retailers, many of whom were slow to prepare for the new charge—a familiar dynamic when changes to payments systems threaten to add costs for merchants.
“NPCI announces a change that affects a large portion of the network,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “A certain percentage of the merchants are skeptics and don’t do anything based on their belief that NPCI won’t follow through with actually implementing a fee. Now we find out that it’s not a bluff and the fee is really going into effect, merchants are scrambling saying they need more time.”
Giving Merchants More Time
The fee’s implementation would also have coincided with India’s annual festive season, which runs from October through December and is marked by a surge in consumer spending. Delaying the rollout gives merchants more time to prepare while sparing them the additional cost during their busiest sales period.
A source told Reuters that the fee could now take effect in January.
UPI has quickly become a central pipeline for Indian commerce, processing nearly 25 billion transactions worth more than $312 billion in August alone. NPCI is therefore treading carefully, wary of disrupting a payments system that has become deeply embedded in the country’s economy.
“UPI has been so successful and commands such dominant market share in India it wouldn’t make sense to blow up the network by forcing through a change that merchants aren’t ready to support,” said Apgar. “You alienate the merchants you need to keep the customers happy, and it just makes it harder when the next change comes around.”
A Lesson for U.S. Regulators
U.S. regulators are likely watching developments in India as they consider similar restrictions on payment fees. Illinois, for example, has been pushing legislation that would prohibit interchange on taxes and tips, although the measure has been delayed several times amid opposition from merchant groups.
“Right now, nobody thinks it will actually go into effect, so nobody is doing anything to support it,” said Apgar. “If by some misfortune it sticks, you’ll hear everybody from Visa and Mastercard to large merchants saying, ‘We need a year or more to implement this.’”