NPCI set to abolish PSP fee for P2M transactions till 1 April

21 Feb 2020


The National Payments Corporation of India (NPCI) is all set to abolish the payment service provider fee (PSP) and interchange fees till 30 April, although it is yet to decide on any mandate on switching fees.

While banks have been lobbying for a zero switching fee and payment service provider fee (PSP) after the scrapping of Merchant Discount Rate (MDR), the decision will leave third-party apps such as Google Pay, PhonePe, Paytm, Bharatpe and Amazon Pay operating in the merchant-based UPI ecosystem high and dry.
According to minutes of the NPCI working committee meeting released on 14 February, the organisation will waive-off interchange and PSP fee effective 1 January 2020 and will release a circular to that effect. 
The decision on an interim measure has been endorsed by the working group members of NPCI. 
If is not known what happens to the fees already collected, if it is implemented retrospectively.
Now the beneficiary banks (banks that received payments on the transaction) will not make any money on UPI-based transactions (peer-to-merchant or P2M). As of now, beneficiary banks make Rs 0.25 on transaction of up to Rs1,000, Re1 on a transaction worth Rs25,000 and Rs5 on transactions up to Rs75,000.
Waiver of PSP fee would leave no room for companies like Google Pay, PhonePe, Amazon Pay and Paytm to earn anything on UPI transactions. On average, they make about Rs0.30-0.35 through PSP fee on every P2M transaction.
NPCI also mentioned that the steering committee meeting will be held in April to discuss and decide the future course of action, in case the MDR issue isn’t resolved. 
The government had already abolished MDR on transactions via RuPay debit card and UPI from 30 December 2019. Since banks aren’t charging MDR on RuPay and UPI transactions, they have no funds to pay to any other stakeholder — be it a network (MPCI) or third-party apps — to make money.
PhonePe, Google Pay, Bharatpe and Amazon Pay who have been spending several million dollars every year to capture a high market share in the UPI ecosystem will not be able to make a single rupee out of it. Theoretically, after removal of the PSP fees, there will be no future revenue model that exists for third-party apps such as Google Pay, PhonePe, Paytm, Bharatpe and Amazon Pay in the merchant-based UPI ecosystem.

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