Context:
ICICI Bank has begun charging payment aggregators (PAs) for processing UPI transactions, raising concerns over the long-term viability of the zero-cost digital payments ecosystem.
Key Highlights:
- Impact on Payment Aggregators:
- Affects fintechs like Razorpay, PayU, Pine Labs, Innoviti, Worldline.
- These firms operate on thin margins, collecting merchant discount rates (MDR) on cards and platform fees on UPI.
- Banks handle backend infrastructure and transaction processing under UPI without charging users.
- Wider Industry Shift:
- Other banks like Axis Bank and Yes Bank reportedly also levy UPI processing charges on PAs.
- Indicates a broader pushback by banks against uncompensated costs of scale.
- Regulatory and Policy Tensions:
- Government insists UPI is a public good and must remain free for users and small merchants.
- However, RBI officials, including Governor Sanjay Malhotra, caution that UPI must be financially sustainable, and “someone will have to bear the cost”.
- Current Aggregator Strategy:
- Most PAs continue to subsidise UPI costs internally instead of burdening merchants.
- Business models now under review as sustainability concerns mount.
