UPI transaction fee: Two-third Indian users may stop using service if charge introduced, finds survey

A recent survey has revealed that a significant majority of India’s Unified Payment Interface (UPI) users may stop using the service if transaction fees are introduced. The survey, conducted by LocalCircles, found that 75 per cent of users would likely abandon UPI if such charges were implemented, highlighting the potential impact on this widely-used digital payment platform.

UPI has rapidly become a cornerstone of digital payments in India, with many people relying on it for a substantial portion of their transactions. According to the survey, 38 per cent of respondents reported using UPI for more than half of their payment transactions, while 37 per cent indicated that more than half of their total payment value is processed through UPI.

This data underscores UPI’s role as a preferred payment method for nearly four out of ten users, driven by its ease of use and widespread acceptance across the country.

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However, the introduction of transaction fees could disrupt this growing dependence on UPI. The survey found that only 22 per cent of users are willing to accept any form of transaction fee on UPI payments.

A significant concern among users is that if businesses are required to pay fees for UPI transactions, these costs will inevitably be passed on to consumers, similar to the way credit and debit card fees are handled. This could make UPI less attractive, particularly for small businesses and individual consumers who rely on it for cost-effective transactions.

The possibility of introducing a Merchant Discount Rate (MDR) for UPI transactions has also sparked worries among users. Many fear that allowing merchants to be charged an MDR could lead to higher costs for consumers, which might deter them from using UPI as their primary payment method. This potential shift in consumer behaviour could have widespread implications, given UPI’s current popularity and its role in facilitating digital payments across urban and rural areas alike.

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The survey, conducted from mid-July to mid-September 2024, gathered responses from over 44,000 people across 325 districts in India. The participant pool was diverse, with 65 per cent men and 35 per cent women, representing both urban and rural regions.

The findings suggest that any move to introduce fees on UPI transactions could lead to a significant decline in its usage, despite the platform’s current prominence in the digital payments landscape.

As UPI continues to play a vital role in India’s digital economy, the potential introduction of transaction fees raises important questions about the future of this payment method.

The strong user preference for fee-free transactions highlights the need for careful consideration by policymakers and stakeholders to ensure that any changes do not undermine the widespread adoption and utility of UPI.