Bank of India expects to gain nearly Rs100 crore a quarter from a 0.4% fee on selected merchant UPI transactions above Rs2,000, as India seeks to make its payments infrastructure financially sustainable.
State-owned Bank of India expects to add nearly Rs100 crore to quarterly income from the proposed merchant discount rate on selected Unified Payments Interface transactions, managing director and chief executive Rajneesh Karnatak told ETBFSI. The projection underlines how the government’s decision to allow a fee on some higher-value merchant UPI payments could open a new earnings stream for banks and payment firms after years in which the rail was kept largely free for users and merchants.
The change is being framed as a sustainability measure for India’s digital payments system rather than a broad-based charge on all UPI use. According to Financial Express, around 75% of merchants accepting digital payments have never handled a UPI transaction above Rs2,000, which would leave them outside the scope of the new levy. The National Payments Corporation of India has said the framework could generate Rs13,000 crore to Rs15,000 crore in its first year, while Business Standard reported that brokers see a wider annual revenue pool of Rs15,000 crore to Rs20,600 crore across the banking and fintech ecosystem.
For lenders, the immediate attraction is the share of the fee that is likely to flow to banks inside the payments chain. Mint reported that mid-sized public sector lenders expect an extra Rs70 crore to Rs100 crore a quarter, while larger banks could receive roughly three times that amount. A separate Mint report said the 0.4% MDR on eligible merchant UPI transactions above Rs2,000 would be split among the customer’s issuing bank, the merchant-acquiring bank, the UPI app and the bank supporting the app, reinforcing the view that banks could capture the largest portion of the new pool.
Industry observers also see the move as a possible tailwind for rival payment rails. According to Mint, the fee could help revive the economics of debit and credit cards and support ATM networks, both of which have faced pressure as UPI usage surged. ETBFSI has reported that banks such as Yes Bank, Bank of Baroda, Punjab National Bank and IndusInd Bank are among the potential beneficiaries, with the framework designed to apply to eligible person-to-merchant transactions above Rs2,000 rather than to ordinary retail UPI use.
NPCI has argued that the redesign is meant to protect small merchants while funding future innovation in the UPI ecosystem. The Times of India reported that the body sees the levy as a way to preserve free or low-cost access for small-ticket transactions while bringing in charges on larger merchants who already pay card-processing fees. That balance will determine how much of the projected revenue becomes durable income for banks such as Bank of India and how much is passed through to other parts of the payments infrastructure.
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