Context:
From August 1, 2025, ICICI Bank will start levying charges on payment aggregators (PAs) for processing Unified Payments Interface (UPI) transactions, becoming the latest major private bank to tap into this cost recovery mechanism.
Key Highlights:
Reason Behind the Move
- ICICI joins Yes Bank and Axis Bank, which already levy similar charges on PAs.
- Banks invest heavily in UPI infrastructure (switches, APIs, fraud monitoring, etc.).
- With no Merchant Discount Rate (MDR) applicable on UPI, banks currently earn minimal or no revenue per transaction.
- Banks also pay NPCI for access to the UPI switch.
Impact on PAs and Merchants
- PAs often charge merchants platform fees, convenience charges, or integration costs.
- With this move, PAs may:
- Pass on the charges to merchants to maintain margins.
- Absorb the cost depending on contractual terms with merchants.
Growing UPI Volumes and Monetisation Pressure
- Peer-to-merchant (P2M) UPI volumes are rising sharply.
- Credit card–linked UPI transactions are also growing, creating new opportunities for monetisation.
Operational Structure of PAs
- PAs act as intermediaries between the customer’s bank (debit side) and merchant’s bank (credit side).
- Typically maintain escrow accounts with their banking partner.
- Once funds are received, they are transferred to the merchant’s account.
