This is not a minor UPI question. It is a major future-of-technology question for Indians.
User behavior is very difficult to predict, especially when there is no precedent.
I did not expect that India will take to UPI like fish to water. After all, which merchant would like to expose himself to income tax and GST scrutiny by moving from cash to UPI-based Bank transactions?
Now UPI will no longer be completely free. What happens next?
First, let us look at individual user behavior.
Based on the last 24 hours of social media reactions, my expectation is that Indians will continue to use UPI as before (with minor exceptions) despite the proposed fee structure.
That’s because I am seeing a lot of social media bravado along the lines of, “I shall never use UPI hereon,” “I will start using cash again,” “I went to a chai shop today and he demanded cash,” etc.
I have seen such bravado before with declarations of, “I will boycott Chinese products,” “I shall boycott America because of Trump’s tariffs,” “I canceled my vacation to Maldives because they insulted Modi,” etc.
This is one of the pictures circulating now on social media. There is no UPI fee on a ₹50 transaction. Any fee is being levied only from Oct 15. But somehow some shop is already openly advertising an extra UPI charge on just one item from the menu!
People vent on social media when they intend to comply quietly in the real world.
How about merchant behavior?
Will merchants, in general, pass on the UPI fee to their customers?
Obviously, they would want to! Merchants will have to recover all their costs - electricity costs, rent, staff salary, Bank charges, etc. - plus expected profits, from their customers, one way or the other.
Sure, most of them may not explicitly charge you a 0.4% fee because the Government says so. After all, even calculating the 0.4% value on each transaction will take too much effort.
But ultimately, the UPI fee increases the merchant’s cost of doing business. He would like to recover that from his customers. Whether he recovers only 0.1% or 0.4% or even 4% depends on his competitive position. If he is offering value for money and has loyal customers, he will try to increase prices by as much as he can - even 4% (without linking that to the UPI fee). Else, if he is not getting enough customers, he will eat the cost for now.
Hypothetical scenario - 1
What if the fee structure is changed to include all merchant transactions? Not just those above ₹2,000. May be a lesser fee, but some fee, for smaller value transactions.
Will the auto driver start carrying loose change from then on? If the fare is ₹238, will you pay ₹250 because he doesn’t have ₹12 rupees in cash to return to you? Or, would you rather be done with the transaction in five seconds after paying ₹1 extra?
I know what most of you are going to do eventually, even if you deny it right now.
Hypothetical scenario - 2
What if there is a ₹10 monthly subscription fee for the individual to keep UPI apps running on his/her phone? The fee will apply if you do more than 4 transactions per month. The first 4 transactions are free.
Will people uninstall UPI apps from their phone if that happens? I don’t think so.
People are too wedded to UPI now to backtrack, go to ATMs, so that they can give ₹39 to one friend, receive ₹465 from another friend, and pay ₹83 to the Porter delivery guy.
The bigger impact from this UPI experiment
Now we come to the bigger topic - the future of technology in India.
Banks and app-creators have built UPI technology to make life convenient for you and they would like to make money from it.
You are the user of that technology, the voluntary beneficiary, and you are supposed to pay for it.
The problem is that there is no precedent for this in India. Indians simply don’t pay for software. They will pay for buying chairs, for watching movies, for a hotel room, for petrol, for a haircut. But not for something that is just software. Stealing a watch is considered theft. Downloading pirated software is not.
Unless Indians are willing to pay for genuinely good products and services, more entrepreneurs will not build new goods and services to offer to them. Then you will complain, “Why don’t we produce anything new, innovative and high quality in India, for India?”
But now, Indians have supped from the technology nectar pot, and they are liking it. They will also get used to paying for it.
Once that happens, you can expect the Indian tech ecosystem to change dramatically. Many Indian tech entrepreneurs - supported by venture investors - will start building products first for the massive Indian market, rather than run away to America where people - individuals and businesses - are very easily willing to pay good money for intangible products.
My own opinion has changed
I was pessimistic about the initial UPI rollout. I didn’t expect the average merchant to allow UPI payments and expose his thriving business to tax scrutiny.
In general, I have been pessimistic about India’s ability to build software products for the Indian market because our per capita income is too low, and Indians don’t pay for tech.
I am more optimistic now that people will pay for UPI (these fees will extend to more transactions), and this will create a boom in supply of tech solutions, built in India, for the Indian market.
In another 4–5 years, the Indian market will be flooded with Indian software products, some of which will then also go global.