India has paved the way for charging merchants a fee on UPI transactions

I really hope cash transactions become a little more normalised in India.

The UPI experience is built for a single audience in mind. It has changed the way people transact in India but at the same time it's been an absolute nightmare for a tourist to play along. The only route for a tourist to use UPI is via third party apps, which charge a markup for loading money (3%). But let's say you accept that as a part of travelling - the limitation of tourist wallets is that they can't be utilised for P2P payments - exactly what UPI is most used for across the country.

Alternative, since no one accepts cash anymore, is that I have to carry thick wads of cash so I can hand out exact change. That still gets you the stink eye because most vendors don't like to deal with cash anymore.

Pennywise, pound foolish decision.

India is forced to subsidize farmers to the tune of $37B JUST for urea. Governments routinely offer free bus services to women, free cash handouts to women, free electricity to farmers (who then use the power to pump out groundwater and grow paddy in areas otherwise not suitable for it). The list goes on.

A $1B subsidy to eliminate friction on the payment front is peanuts.

UPI payment has enabled tracking actual sales data and helped with tax collection. This is an intangible benefit which is likely to go away with the introduction of the fee.

Yesterday an article on tipping hit HN and this reminds me of it. When you remove barriers people spend freely. Start throwing stupid pause moments, the value doesn't match the advertised price because of x fee, y tax, z undisclosed service or an outright wall screen begging for a tip, and people slow down their purchasing. It will be interesting to see an impact here if this goes through and it could be instructive to the value prop that tips bring to industry. You may think you are externalizing a cost but maybe you are really harming sales.

0.3-0.5% is still nowhere near the rates of visa and mastercard. Does UPI offer the same level of fraud protections or is it a free for all like Zelle is here in the states? Especially if they limit to > 2000 rupees.

Hopefully they allow foreigners some track to access UPI in the future.

Isn't 0.5% very competitive and basically nothing compared to taxes on the transaction?

Here in Poland we have a budding "save cash" movement. And they make some good points about freedom and privacy but are the loudest about the processing fees when mostly it's a way for smaller merchants to avoid paying taxes. Which is fine, I think they should be exempted anyway, but let's not pretend that it's the 0.5% in fees rather than the 30% in taxes.

> the system is now available in some form for payments in 11 countries outside India.

I see this often cited, but in reality it's a farce. "UPI is international" the staunch defender says, so I rebut "Yes, in one place at the Eiffel Tower... everywhere else? The French have no idea what UPI is, and your bank will charge you stupid FX fees for card payments".

Meanwhile if I'm in India, people look at me weirdly for paying with UPI yet most won't take card payments outside of tourist areas or it will get declined because foreign cards are blocked - and if you try to pay cash suddenly nobody has any change, will refuse to take the 20 rupee note they gave you yesterday, or have concerns about whether the notes you literally just withdrew from an ATM are legitimate - meaning you can end up with notes that are defacto unspendable despite being perfectly legal tender and in acceptable condition.

And as a tourist... you want UPI? There are a few ways but they're byzantine, apps locked to the Indian App Store (for tourists?), in-person KYC upon landing, very low first-payment limit, topup/signup and idle fees that push the net fee % easily into the 5-10% range.

Lets look at a perfect example... you pre-KYC on an app ahead of your trip on the one app that allows remote KYC, but you can't load money onto - first you must provide your visa, but the eVisa doesn't count they want the actual visa stamped in your passport. You land, immediately after customs you submit the picture of your visa stamp and wait an indeterminate amount of time, it could be 8 hours, or 24 or 48 or it could get rejected and you could be required to do in-person KYC (either you go to them, or they come to you within a ~5hr window... but only in the major cities).

So day 1 it's impossible to use UPI. It gets approved on day 2, you take a taxi somewhere maybe a nice restaurant, your UPI is now loaded with INR and you try to pay the driver... Your driver has a personal UPI account, you can't pay him! You only have cash... Large denomination INR notes because that's what the ATM provides, he doesn't take card and refused to admit he has change. You eat the already inflated cost and swear to only use app-based services (assuming the Taxi Mafia hasn't had them banned in your city).

You get to the resto and enjoy a meal with your friends, it's a nice place and somewhat expensive, you come to pay, the bill is reasonable and you think "I will pay with UPI", you try paying, it's a business account so should be OK! NO.... You have exceeded your first-day limit! Waiter tells you there is no card machine, and they have no change for cash...

Eventually you leave India, there's a non-trivial amount left in your tourist UPI account, you look for somewhere to withdraw it back to your card - no physical counters open at the airport, you request a withdrawal via the app... it never comes, the next month you get hit with a 500 INR inactivity fee, your visa expires and the app shuts down, next month 500 INR inactivity fee - can't make support requests through the app any more because your visa is no longer valid... Your balance slowly goes to 0 because you didn't think to spend every last rupee on your way out so it gets eaten by the system.

I say a small sub-1% fee on UPI is fine, it's great infrastructure when it works, but more needs to be done with global UPI integration. I have QR enabled payments available across maybe 10 different countries and India sticks out as being the one that's consistently an absolute pain and actively works against you.

The Australian experience of allowing a transaction fee is simply that every single transaction adds the maximum amount.

After whatever maybe 15 years that have banned the practice.

Title is: UPI: India built the world's biggest digital payments miracle. Now comes the bill

Ever since someone brought up this system a while ago and confused it with a Real-Time Gross Settlement (RTGS) system https://news.ycombinator.com/item?id=48875605 , it has been bothering me that seemingly no one is talking about the real long-term cost of this "free system."

The history of payment systems is a history of risk. A quick primer,

All large-scale payment systems that interface with banks must have an answer for the inherent conflict between what the bank does (i.e. provide debt) and how it does it (by taking savings).

If the purpose of banks is to take capital from customers and use it to provide debt to others, then how much money should they keep for their customers' withdrawals and transfers?

If you do constant transfers back-and-forth 24x7 multiple times a second, then banks need a lot of capital at hand to manage the liability.

So even though gross settlement is supposed to be real-time, most RTGSes allow banks to borrow from their government's central bank via an "intra-day credit" system and then effectively net / settle at the end of the day, https://www.newyorkfed.org/research/epr/08v14n2/exesummary/e...

This loophole in a supposedly real-time system reduces the amount of money that banks "actually" owe each other. This allows banks to keep smaller reserves and provide greater amounts of capital to their customers.

You can see the different daily settlement points for the US here, https://www.federalreserve.gov/frrs/regulations/ii-federal-r...

But if you net only a few times a day, it creates risk. What if a bank becomes insolvent in between? Then it wouldn't be able to meet the obligations created by its customers, which would mean that other banks would fall short on their obligations and so on.

It's a network contagion effect; which is partly why the US Fed spent the better part of a decade studying counter-party risk in settlement systems before designing the latest version of its RTGS.

The Fed has protocols in place to stop such contagions before they start. Does the Indian government and its central bank? Where's the capital required going to come from? If a bank fails, who pays for its obligations? The Fed (currently) has a free infinite money glitch backed by the US Military, but the Indian government doesn't. So... where's that money going to come from?

Who is underwriting this system? Have they modelled systemic collapse? Because given what I've read about Indian banks and their bad debts, https://www.bbc.com/news/world-asia-india-58654740 it's a when not an if.

Cue a billion people panicking...

Apparently even BBC reporters now use LLMs to draft their articles.