The Indian government continues to tweak its policies in support of reducing the use of cash in that country. But those efforts don’t always come without controversy.

According to the Business Standard, the Indian finance ministry announced in December that, beginning in February, it would fine merchants above a certain sales volume for not accepting payments over the country’s domestic platforms RuPay and UPI. RuPay and UPI are both operated by the National Payments Corporation of India. 

The agency also announced that it was waiving the merchant discount rate (MDR) – the amount a merchant pays per transaction to accept electronic payments – on transactions conducted using RuPay or UPI in a bid to promote these payment methods over international payment modes such as Mastercard and Visa. 

But that move could backfire because of its impact on those that benefit from the revenue the MDR generates. 

“Nearly 55% of this revenue goes to the private fintech players and the rest goes to the banks,” Loney Antony, vice chairman, Hitachi Payment Services, told the Economic Times.

The article noted that payments providers such as PFs Paytm, Mswipe and PineLabs have drawn significant funding from foreign investors. 

“In a scenario where there are no viable business models for these companies, the investments coming in would also take a hit,” Antony said.

According to the Business Standard, the finance ministry announcement has prompted strong responses from payment providers, including industry trade organization Payments Council of India (PCI) and some payment facilitators operating in India.

“Elimination of MDR will dry up revenues and create a catastrophic situation for new start-ups and fintech companies, as banks will not pay for their service,” said Vishwas Patel, chairman at PCI, who is also a director at PF Infibeam Avenues, in the article.

“In fact, elimination of MDR may also result in withdrawal of the existing deployed PoS terminals in the market that are too huge in numbers. This would adversely affect digital payments in India,” said Byas Nambisan, CEO of PF Ezetap.

“Who does it really benefit, other than of course, the NPCI, which owns RuPay and UPI?” Akash Gehani, co-founder and chief operating officer PF Instamojo asked.

The number of UPI-based transactions in India has been on the rise. In December, the system logged 1.3 billion transactions, an 111% increase over the previous year.