UPI Payment Charges: Users May Stop Usage, Survey Reveals

The Digital Payments Council of India has written a letter to the Prime Minister requesting the imposition of a 0.3% Merchant Discount Rate (MDR) on UPI transactions. Additionally, the PCI has proposed MDR on RuPay debit card transactions as well.

According to a survey conducted by LocalCircles, 73% of users stated that they would stop using UPI if the government imposes fees on transactions. Many users believe that if MDR is implemented, most merchants will pass this charge on to customers.

UPI Transactions Surge by 89.3% in Five Years

Over the past five years, UPI transactions have increased by 89.3% in volume and 86.5% in value. According to the Reserve Bank of India’s (RBI) Payment System Report, UPI’s contribution to India’s digital payment ecosystem has risen from 34% in 2019 to 83% in 2024—more than doubling.

The issue of user fees emerged in August 2022, when RBI proposed a fee structure, but the proposal was not implemented as the government assured that no charges would be levied.

Digital Payment Revolution in India – UPSC/PSC Analysis

The Digital Payment Revolution in India is a major step toward a cashless economy. After the 2016 demonetization, digital payments surged, with the government introducing several initiatives to promote digital transactions. Innovations like UPI, Aadhaar Payment, Bharat QR, RuPay, and e-RUPI have made digital payments more accessible.

Timeline of Digital Payment Evolution in India

 1. Early Phase (1990-2010)

• 1990s – Beginning of banking digitalization.
• 2004 – RTGS (Real Time Gross Settlement) system introduced.
• 2005 – NEFT (National Electronic Funds Transfer) launched.

 2. Mobile & Online Payment Era (2010-2016)

• 2010 – IMPS (Immediate Payment Service) introduced.
• 2012 – Aadhaar-based payment system launched.
• 2014 – "Digital India" campaign launched by the Modi government.
• 2016 – A surge in digital payments after demonetization.

 3. Digital Payment Revolution (2016-Present)

• 2016 – UPI (Unified Payments Interface) launched.
• 2017 – Bharat QR and BHIM app introduced.
• 2018 – RuPay card adopted internationally.
• 2020 – Introduction of ONDC (Open Network for Digital Commerce) and e-RUPI.
• 2023-24 – UPI expands internationally (UAE, Singapore, Bhutan, Nepal, etc.).

Major Components of Digital Payment in India

1️. UPI (Unified Payments Interface)

• Developed by National Payments Corporation of India (NPCI).
• Fast and secure digital payment system based on IMPS.
• Features: UPI 2.0, UPI AutoPay, UPI Lite, UPI 123Pay.
• Now accepted in Singapore, UAE, Nepal, etc.

2️. BHIM (Bharat Interface for Money)

• Simple and secure UPI-based app developed by NPCI.
• Works without the internet using USSD Code (*99#).

3️. RuPay Card

• India’s own digital payment card (alternative to Visa & MasterCard).
• Used internationally in Singapore, Bhutan, UAE, Nepal.

4️. AEPS (Aadhaar Enabled Payment System)

• Enables banking services using biometric authentication.
• Promotes digital payments in rural areas.

5️. e-RUPI

• Digital voucher-based payment system developed by NPCI.
• Useful for government subsidy distribution and CSR fund utilization.

6️. ONDC (Open Network for Digital Commerce)

• A UPI-like open network for e-commerce.

7️. CBDC (Central Bank Digital Currency - e₹)

• Digital rupee (e₹) launched by RBI.
• Includes CBDC-R (Retail) and CBDC-W (Wholesale) models.

Benefits of Digital Payment Revolution

✔ Cashless Economy – Reduced dependence on cash.
✔ Fast and Secure Transactions – IMPS, UPI, RuPay enable instant transactions.
✔ Curbing Black Money – Digital transactions can be tracked.
✔ Financial Inclusion – Banking services reach rural and poor communities.
✔ Boost to E-commerce and Digital India – Growth in online shopping & services.

Challenges in the Digital Payment Revolution

🔸 Cybersecurity Risks – Increased chances of fraud.
🔸 Digital Literacy Gap – Low awareness in rural areas.
🔸 Internet Connectivity Issues – Limited access in remote regions.
🔸 Preference for Cash Transactions – Many still prefer cash payments.
🔸 MDR (Merchant Discount Rate) Issue – Fees on UPI transactions affecting merchants.

Government Initiatives to Promote Digital Payments

🔹 1. Digital India Campaign – Aim to empower the nation digitally.
🔹 2. PMGDISHA (Pradhan Mantri Gramin Digital Saksharta Abhiyan) – Digital literacy for 60 million people in rural India.
🔹 3. BharatNet Project – Broadband connectivity to 250,000+ village panchayats.
🔹 4. NPCI's Digital Payment Solutions – Expansion of RuPay, UPI, e-RUPI, AEPS.
🔹 5. Incentive Schemes – BHIM Cashback, UPI transaction incentives, tax benefits.

Conclusion

India’s digital payment revolution has enhanced economic transparency, financial inclusion, and e-commerce. However, challenges like cybersecurity, digital literacy, and internet access persist. The government and private sector are working together to make digital payments secure, accessible, and inclusive.

Possible UPSC/PSC Questions

1️. Discuss the key components of India's digital payment revolution.
2️. What role does UPI play in promoting digital payments?
3️. What are the benefits and challenges of digital payment systems?
4️. Analyze the government’s initiatives to promote digital payments in India.
5️. Despite the growth of digital payments, why is cash still popular in India?

Digital Payment Revolution in India – UPSC/PSC MCQs

1. Which is the key institution related to the digital payment system?

A) Reserve Bank of India (RBI)
B) National Payments Corporation of India (NPCI)
C) State Bank of India (SBI)
D) NITI Aayog
✅ Answer: B) National Payments Corporation of India (NPCI)

2. In which year was the Unified Payments Interface (UPI) launched?

A) 2012
B) 2014
C) 2016
D) 2018
✅ Answer: C) 2016

3. What is ‘e-RUPI’?

A) A digital currency
B) A digital voucher-based payment system
C) A cryptocurrency
D) A banking app
✅ Answer: B) A digital voucher-based payment system

4. What is the full form of 'IMPS' in digital payments?

A) Indian Monetary Payment System
B) Instant Mobile Payment Service
C) Immediate Payment Service
D) Internet Mobile Payment System
✅ Answer: C) Immediate Payment Service

5. Which of the following is NOT an example of digital payment?

A) NEFT
B) UPI
C) RTGS
D) Fixed Deposit
✅ Answer: D) Fixed Deposit

6. RuPay card is developed by which organization?

A) RBI
B) NPCI
C) SEBI
D) IRDAI
✅ Answer: B) NPCI

7. Choose the correct statements about 'Bharat QR':

1. It is a QR code-based payment system.
2. It was jointly developed by NPCI, Mastercard, and Visa.
3. It is limited only to online payments.

A) Only 1 and 2
B) Only 2 and 3
C) Only 1 and 3
D) All are correct
✅ Answer: A) Only 1 and 2

8. Which scheme was launched by the Government of India to promote digital payments?

A) Digital Literacy Campaign
B) Digital India Mission
C) BharatNet Project
D) All of the above
✅ Answer: D) All of the above

9. Which of the following is NOT related to digital payments?

A) AEPS
B) UPI
C) RTGS
D) FDI
✅ Answer: D) FDI

10. Who issues 'CBDC' (Central Bank Digital Currency)?

A) NPCI
B) Ministry of Finance
C) Reserve Bank of India (RBI)
D) SEBI
✅ Answer: C) Reserve Bank of India (RBI)

11. What is the purpose of the ‘123PAY’ service in UPI?

A) For credit card transactions
B) For digital payments without the internet
C) For cryptocurrency transactions
D) Only for merchant payments
✅ Answer: B) For digital payments without the internet

12. Which of the following digital payment platforms is NOT developed by NPCI?

A) UPI
B) RuPay
C) PayPal
D) Bharat BillPay
✅ Answer: C) PayPal

13. What is the main objective of ‘ONDC’ (Open Network for Digital Commerce)?

A) To promote digital advertising
B) To streamline digital commerce
C) To support only e-commerce websites
D) To regulate cryptocurrency trading
✅ Answer: B) To streamline digital commerce

14. What is ‘MDR’ (Merchant Discount Rate) in digital payments?

A) Tax imposed by the government on digital transactions
B) Fee charged by banks and card providers from merchants
C) Cashback offered to customers on digital payments
D) Security system for online banking
✅ Answer: B) Fee charged by banks and card providers from merchants

15. Which was the first country to adopt UPI at an international level?

A) USA
B) Japan
C) Singapore
D) Australia
✅ Answer: C) Singapore

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