Prominence to Profitability

Google Pay has initiated a new fee for bill payments made through debit or credit cards in India, marking a shift as companies pass on card fees to customers. According to reports from The Economic Times, users will now face a convenience charge of 0.5% to 1%, including GST, when paying electricity and gas bills using their cards. This change brings Google Pay into line with competitors like PhonePe and Paytm, who have already introduced processing fees for card transactions involving bill payments and recharges.

However, these fees are limited to card-based transactions; UPI-linked bank account transactions will remain free of such charges. The economic impact of these fees is part of a broader trend as fintech firms struggle to convert their growing popularity into profitability on the United Payment Interface (UPI) platform.

Google Pay’s move reflects the rising costs associated with processing payments through UPI, which has seen significant growth in usage, recording 16.99 billion transactions alone in January. Despite this rise, many firms face financial challenges due to the volume of low-value transactions processed on the platform.

To address these issues, India’s government has undertaken several initiatives aimed at improving profitability for payments companies operating on UPI. These measures include waiving Merchant Discount Rates (MDRs) for UPI transactions below ₹2,000 and delaying the implementation of market share caps for two years. Despite these efforts, platforms continue to seek new revenue streams.

Improvement Initiatives

The government’s initiatives have included reducing costs for low-value UPI transactions and providing an extended timeframe for implementing market share caps, which were originally set at a maximum 30% of total transaction volume on the platform. Currently, PhonePe holds about 48% of UPI payments, with Google Pay trailing slightly at around 37%. These measures are seen as steps towards sustainable business models but do not fully solve the issue of monetization for platforms like Google Pay and PhonePe.

The ongoing challenge for these platforms is to find ways to generate revenue from their growing user base without hampering accessibility or convenience for customers. As such, the introduction of convenience fees is part of a broader strategy to balance growth with profitability in India’s dynamic digital payments landscape.