Google Pay has recently implemented a convenience fee for specific payments made with credit and debit cards. This change affects payments for utility bills, such as electricity and cooking gas, that were previously exempt for lower-value transactions. The fee will range from 0.5% to 1% plus GST, bringing Google Pay in line with other UPI platforms like PhonePe and Paytm, which also charge similar fees.
Convenience Fee for Google Pay
An investigation by ET revealed that a user incurred a charge of around Rs 15 as a “convenience fee” while settling an electricity bill using a credit card. This fee, inclusive of GST, was also referred to as a “processing fee for debit and credit card transactions.
Limited Application of Convenience Fees to Card Payments
According to Google Pay’s official website, the convenience fee applies exclusively to card payments, while UPI transactions linked directly to bank accounts remain free of charge. The specific timeline for the implementation of these fees has not been made clear.
Other Platforms Also Implement Fees for Transactions
PhonePe also charges convenience fees on card payments for specific utility bill payments, including those for water, cooking gas, and electricity. Similarly, Paytm applies platform fees ranging from Rs 1 to Rs 40 for UPI recharges and various bill payments, such as those for gas, water, and credit card transactions.
Costs Associated with UPI Transactions and Government Regulations
Even with the growing popularity of UPI, fintech companies have faced challenges in generating substantial revenue. According to PwC, the cost to stakeholders for processing UPI person-to-merchant transactions is approximately 0.25% of the total transaction value. During FY24, the costs associated with UPI transaction processing amounted to Rs 12,000 crore, with Rs 4,000 crore spent on transactions below Rs 2,000.
Since 2020, the Indian government has eliminated the merchant discount rate (MDR) for UPI transactions under Rs 2,000 to encourage digital payments. Starting in 2021, the government also began absorbing MDR costs for smaller transactions, while for transactions surpassing Rs 2,000, a merchant fee of 1.1% is permissible.