From next month, India's UPI instant payment system will apply a small fee to transactions above 2,000 rupees, about $21. According to the Financial Times, a LocalCircles survey found that 83% of merchants are unwilling to absorb the extra cost. Meanwhile, cash in circulation is roughly 2.3 times what it was ten years ago, despite UPI's explosive growth. The Reserve Bank of India describes this as the cash paradox.
What it means: UPI is held up worldwide as a success story for instant payments, largely because it was free for users and merchants. Introducing a fee, even a small one limited to larger amounts, tests how durable that success is once someone has to pay for the infrastructure. Merchant pushback and some customers returning to cash show that price is decisive in how people choose to pay. For Europe the debate is directly relevant. The Instant Payments Regulation requires that instant euro transfers cost no more than standard transfers, and a cap on merchant fees is being discussed for the digital euro. In Greece, IRIS has grown precisely because it is cheap for small businesses, and India's experience shows what can happen when costs are pushed onto merchants abruptly. The coexistence of digital payments and rising cash is also a reminder that digitalisation does not automatically eliminate banknotes, which matters for tax policy and the link between POS terminals and myDATA. The real picture will emerge after the fee takes effect in November.
Related service: myDATA integrations
Related stories
- World unveils human-verification suite for banks to fight deepfakes
- Truist shifts investment toward deposits and digital banking
- Santander and Nvidia: small specialised AI models cut cost per interaction
- Salmon secures $140 million for digital banking and lending in the Philippines
- Marqeta and Coinbase offer stablecoin-backed cards to enterprise clients