ICICI Bank to charge payment aggregators for UPI transactions from August 1

Private lender to charge up to Rs 10 per transaction on PAs; move follows rising infra costs and lack of MDR revenues in fast-growing UPI ecosystem

ICICI Bank, the country’s second-largest private sector lender, will from August 1 start charging a fee from payment aggregators (PAs) for handling Unified Payments Interface (UPI) transactions that these PAs facilitate on merchants’ platforms.

 

The bank has sent letters to the PAs informing them of this decision.

 

According to a source familiar with the development, the bank will charge PAs that maintain an escrow account with the bank 2 basis points (bps) per transaction, capped at ₹6. For PAs that do not have an escrow account with the bank, the charge will be 4 bps, capped at ₹10 per transaction.

 

 

However, the bank will not levy any charges on PAs if the UPI transactions are settled directly into an ICICI Bank account held by the merchant, as the bank will have the opportunity to earn a float on these funds.

 

“If you look at the RBI governor’s recent statement on charging for UPI, banks may have taken a hint from that statement while rolling out pricing for PAs. From a bank’s perspective, they have invested in the technology, costs surrounding the UPI switch, issuing and acquiring side,” an executive at a payments company said.

 

Yes Bank and Axis Bank are among other private sector banks who charge the PAs for UPI payments, the sources added. Yes Bank, Axis Bank, and ICICI Bank are the top three payment service providers (PSP) in the UPI ecosystem, both from the payer and the payee side. 

 

According to industry experts, with the volume of UPI transactions growing exponentially, particularly in the peer-to-merchant (P2M) segment, banks have had to invest significantly in infrastructure to support the surge. However, with no merchant discount rate (MDR) applicable on UPI transactions, the ecosystem currently earns little to nothing from handling and processing these payments. Additionally, banks pay a fee for using the UPI switch as well.

 

PAs charge merchants a platform fee, convenience fee, and other charges for handling their payments. With end customers not being charged for UPI transactions, banks are now looking to tap into this revenue stream by levying charges on PAs, sources said.

 

“PAs will either pass on the costs to their merchants to maintain margins or absorb them based on the kind of arrangement they have with merchants. Credit card transactions (on UPI) have also grown so there is a form factor for monetisation already in some places,” an executive at another payments firm said.

 

When a customer makes a UPI payment on a merchant’s platform, the PA acts as a facilitator between the customer’s bank, where the money is debited and the merchant’s bank, where the money is eventually credited.

 

Typically, PAs maintain an escrow account with a bank of their choice. The funds are first settled into this escrow account before being transferred to the merchant’s account. Once the funds are received in the escrow account, the PA settles the amount with the merchant’s bank account.