PhonePe Faces Backlash Over Rs 100 Quarterly Inactivity Fee on Dormant Wallets in India

PhonePe is under fire after users discovered a Rs 100 quarterly inactivity maintenance fee on dormant wallets. The charge applies when a PhonePe Wallet sees no financial transaction for 365 days, and users are given a notice period to reactivate it before the fee is deducted.

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The payment system has faced a lot of criticism recently after users found out that there is an inactivity maintenance fee of Rs 100 charged quarterly to dormant PhonePe Wallets. The matter has raised outrage among people on social media platforms like X and Reddit, where several people have shared screen shots of SMS alerts about charging the inactivity maintenance fee.

Such a controversy has emerged because many PhonePe users had no idea about the existence of such fees or were sure that being just a holder of a wallet linked to the application does not imply any additional expenses. It seems quite natural to be outraged by such charges when it comes to such a popular service as PhonePe. In the ecosystem of payments where most users prefer to use UPI for everyday transactions and do not think much about their wallet balances, the charge becomes really irritating.

Why PhonePe users are upset about the inactivity fee

The issue here goes beyond the fee being imposed – rather, it's more to do with how the fee itself has been defined and calculated. As per the current terms listed on the PhonePe website, an account will be declared "inactive" if the customer hasn't engaged in any financial transaction via the PhonePe Wallet for 365 days. This implies that logging into the application, transferring money via the UPI feature, paying for bills, mobile recharge, or even getting KYC done cannot be considered activity on the wallet front if the transaction is not done via the wallet itself.

This very clause is the cause of all the frustration. Many people must be using the PhonePe application quite often for their UPI transfer and merchant payments, but not using the wallet component of their account at all. In this case, they might think their account is active since they keep using the application frequently, whereas the wallet component of the account will still be considered inactive. Thus, the wallet component of a dormant account that might be lying with the user can get subjected to a maintenance fee unexpectedly.

The reason why this matter has become even more contentious is because of the way it was put across, i.e., “Rs 100 per quarter.” This sounds much more stringent compared to a single penalty in case the account is dormant. In addition, those who have very minimal amounts in their account, like in cases of cash-back, refund, etc., may have that amount slowly depleted.

What PhonePe says in its wallet terms and conditions

It becomes evident from the terms of wallet of PhonePe that inactivity fee is applicable in case the wallet does not have any financial transactions for one whole year. The company has stated that it might collect a Quarterly "Wallet Inactivity Maintenance Fee" of Rs 100, inclusive of GST, after a wallet gets listed under inactive wallet category. PhonePe states that before levying the fee on the wallet, it will notify the user of the same through various notifications within 15 days period.

As per PhonePe, users can save themselves from inactivity fee just by performing some transaction on their wallet within the given 15 days period. Once a transaction takes place, the status of the wallet becomes active again and inactivity fee will not be charged. However, if no steps are taken by the user, then the company can automatically deduct the fee from the wallet balance.

Additionally, they state that in case of the balance amount in the wallet being less than Rs 100, PhonePe would reduce the balance by the complete amount making it zero instead of letting the account go into the negative territory. This means that in case the balance amount in the dormant account was Rs 37, then this entire amount can be deducted as an inactivity charge. PhonePe also retains the right to modify its fee structure and make changes in its charges for the current services.

Why the policy feels harsher in the UPI era

The very nature of the backlash itself reflects a great deal about the evolution of India’s payment landscape. Digital wallets were once a key player in the realm of online transactions, cash back, and mobile recharge. However, in recent years, there has been a huge shift towards making transactions through the Unified Payments Interface (UPI). Thus, users of digital wallet services such as PhonePe have accounts in their apps but rarely use them.

This phenomenon gave rise to a regular trend – users continue using the application, but not the wallet within it. Users could have some remaining balance left from previous cash back or refund, or perhaps forget altogether that their digital wallet was ever activated in the first place. Under these circumstances, inactivity fees would be viewed as penalties for unused funds rather than maintenance costs.

From the viewpoint of PhonePe, the logic behind their argument is pretty much clear. Even dormant wallets would need certain maintenance, monitoring of security features, and compliance with regulations, among other things. Dormant wallets can be considered a liability for wallet providers since they continue to be active without being used for anything. Imposing a maintenance fee is a means to cover such an expense. Yet the thing is that such business logic may not match consumer expectations regarding payment apps.

Has this happened before in India’s fintech industry?

Absolutely, this isn’t the first instance of a fintech company charging fees for dormant wallets in India. All the way back in 2021, MobiKwik was criticized for announcing a "wallet maintenance charge" for dormant customers. In this case, MobiKwik explained that users who have not logged in or utilized their wallet in a while would be subject to an annual wallet maintenance charge, which would be deducted from their wallet balance.

In addition, Airtel Payments Bank is another example of how dormant wallet maintenance fees have already been levied in India by listing wallet maintenance charges for dormant wallets on its fee structure. Therefore, it is clear that while PhonePe’s decision is not revolutionary, due to its huge customer base and visibility, the response has been much more intense this time around.

This can also be attributed to the fact that the discussion has gained a lot of traction online. A small wallet company may face some criticism from only a few users if it introduces an inactivity fee, but a big platform such as PhonePe will immediately make the whole matter a mainstream topic. It creates issues about how digital wallet companies charge fees and how they define inactivity.

What PhonePe Wallet users should do right now

For individuals who have at any point of time topped up their PhonePe Wallet or have received funds into their PhonePe Wallet in the form of cashback, refund, and other sorts of credits, this would be an opportune time to check out the wallet tab in the application. If the wallet has remained inactive for 365 days or more, it might already be nearing the inactivity cutoff point or is even within the notice period.

The best course of action at this time is to check whether the wallet is active or not and to know the wallet balance. In case there is any amount in the wallet which the individual doesn’t want to run the risk of paying the maintenance fee, the options available to him or her are limited. The individual can either make use of the wallet in some transaction and thereby keep it active or he or she can withdraw the balance from it.

The key point is that normal PhonePe app usage is not enough if the wallet itself remains inactive. That is the part many users appear to have missed, and it is the main reason the company is now under fire online.

Also, another lesson drawn from the PhonePe wallet fees dispute is that while users see fintech applications as consolidated payment tools, the features contained in them operate under diverse sets of rules. For instance, the UPI account, the prepaid wallet, cash-back rewards, and even the account for payments bank could be available under one application; however, they can have individual terms and definitions of inactivity and fees associated with them.

In turn, for users, this means that even as it seems convenient to just “use PhonePe,” the application itself internally segregates payments via the wallet and through UPI in terms of terms and conditions. With time, as the number of fintech products grows to incorporate wallets, credit cards, loans, insurance and banking, this issue could cause even more complications.

In this situation, the outrage against PhonePe demonstrates how quickly people react to charges for dormant balance. In a world of quick, simple, and mostly free transactions, this case demonstrates the level of sensitivity towards fees. Either way, whether PhonePe will reconsider its approach to the fee and its optics or continue implementing the policy by its terms, there is no doubt that users of the forgotten wallet balance will check the balance in the near future.