India’s most celebrated payments innovation is about to front an awkward question: who pays for convenience? From October 15, the National Payments Corporation of India (NPCI) will impose a 0.4 per cent Merchant Discount Rate on certain Unified Payments Interface (UPI) transactions above Rs 2,000 made to businesses. The charge, payable by merchants and capped at Rs 300, will not apply to person-to-person transfers. Payments up to Rs 2,000 and specified transactions by small merchants in rural and semi-urban areas will also remain outside the new regime.

On paper, this is a modest adjustment. In principle, it is much more significant. UPI’s extraordinary expansion was helped by a simple proposition: digital payments could be immediate, ubiquitous and apparently free. That proposition encouraged customers to scan rather than count notes and persuaded even the smallest businesses to put a QR code beside the cash box. A decade later, UPI processed 24.51 billion transactions worth Rs 29.82 trillion in August alone. The network has become part of India’s economic plumbing. But plumbing has a cost.

The new MDR recognises a reality that the politics of digitalisation has........

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