“UPI was charged till 2020 and for six years it’s been free,” Asbe said at the SBI Conclave on September 24.
He acknowledged that it is “very difficult and painful” to reinstate charges after a prolonged period of zero MDR.
The government had made MDR on UPI zero during the Covid period, a move that Asbe said “really helped the merchants”.
He said the focus now needs to be on ensuring that the UPI ecosystem remains resilient as it scales further.
“For UPI to survive and thrive in coming years we need resiliency,” Asbe said. He added that top banks and acquirers “must invest ahead of time” as costs are growing rapidly.
Asbe also flagged cybersecurity as a key concern, saying the tools available with hackers are becoming “very powerful”. While AI is expensive to use, he said, “we must use it to secure systems to prevent any incidents in the future.”
Why NPCI introduced MDR
Asbe said NPCI had done “a lot of work in the last six months” to arrive at the MDR charges. He said the total cost of running UPI was ₹21,000 crore when NPCI submitted the data to the Reserve Bank of India last year.
He said NPCI looked at three areas while deciding the MDR structure. The first was cost recovery — “if not fully at least reasonably recover some value from ecosystem”.
The second was creating exclusions. Asbe said 96% by value of UPI transactions is not charged, while 75% of merchants have not even seen a single transaction of more than ₹2,000.
The third consideration was which businesses would pay MDR. Asbe said charges would be collected from businesses doing more than ₹1,000 crore in annual turnover. These businesses, he said, are already using credit cards and “have not passed on charges”, which makes NPCI believe they will not pass on UPI MDR either.
“Maybe 10% merchants — there is a possibility — may pass charges and we need to make sure that doesn’t happen,” Asbe said.
He said a market-driven approach is “always better”, given the possibility of “misuse and abuse of subsidy system”.
“There will be some pain to deal with this; once this is done, the value back to the ecosystem will be far larger,” he said.
Under the framework announced earlier this month, UPI continues to remain free for person-to-person transactions, while payments to merchants up to ₹2,000 and specified small-merchant transactions also remain outside MDR. The government has said around 96% of P2M transactions will remain unaffected.
UPI Autopay kept outside MDR
Asbe said NPCI decided to keep the entire UPI Autopay mechanism outside MDR, given the significant role of SIPs in investments.
He also said capital markets have been exempted from MDR, adding that NPCI had sought to be fair to the entire ecosystem, particularly capital markets.
₹3,000 crore UPI fund
Asbe said the UPI fund could be around ₹3,000 crore, which he described as three times the size of the Payment Infrastructure Development Fund (PIDF) scheme.
UPI currently has around 60 million active merchants, he said, of which 35-40 million use only paper-based QR codes. The fund could create the possibility of providing a soundbox to every merchant, according to Asbe.
He said the objective of the fund is to expand the use of UPI among merchants and customers.
UPI’s next phase
Asbe said the first 400-500 million users came to UPI primarily for convenience, while the next set of users could come to the platform through credit. He said credit utilisation on UPI creates short-term credit.
He attributed the slowdown in UPI growth predominantly to slower investment in the ecosystem and said NPCI’s “north star” remains taking UPI to every Indian.
The broader aim, he said, is to take one billion Indians onto UPI and create the infrastructure for wider access to credit and insurance.
Asbe also cited Brazil, saying it started much later than India but has already reached more than 90% mobile-payment penetration.
He further said that, globally, merchant sales have been seen to increase by 25% with the use of digital payments.