Last Updated on Aug 22, 2022 by Aradhana Gotur
Update – no charges on UPI transactions
The government has cleared the air about considering imposing charges on Unified Payments Interface (UPI)-based services. It clarifies that there is no consideration to levy any charges for UPI services. The government also mentioned that the service providers have to consider other means for cost recovery. In the last week, the internet overflowed with speculations that the RBI had floated a discussion paper seeking feedback on charging UPI transactions.
What were the speculations?
The Unified Payment Interface (UPI) is India’s most preferred digital payment platform. As high as Rs. 10 tn is processed in over 6 bn transactions on a monthly basis. UPI is a funds transfer and a merchant payment system. In 2020, the government mandated a zero-charge framework for UPI transactions, but this might soon change.
The RBI has asked for public suggestions and feedback on UPI and other topics in its “Discussion Paper on Charges in Payment Systems”. Here are the details:
- Should the Reserve Bank of India (RBI) impose a “tiered” charge on UPI fund transfers and payments based on different amount bands? The apex bank has sought stakeholders’ suggestions and feedback on this before 3rd October 2022.
- If UPI transactions are charged, should a fixed amount as the Merchant Discount Rate (MDR) be imposed regardless of the transaction value or an MDR be applied based on the amount transacted?
- If RBI should decide on the charges or allow the market to do it. The Central Bank has explained that a stakeholder can incur a processing fee of Rs. 2 for a person-to-merchant (P2M) transaction of Rs. 800 on UPI.
- Regarding debit cards, whether the interchange fee, which is a component of the MDR paid to the card issuer by the acquirer, can be regulated. Also, should MDR for debit cards be uniform across merchants regardless of turnover?
- Can RuPay cards be treated differently from other debit cards affiliated with international card networks MDR-wise? Effective 1st January 2020, the government has made the MDR for RuPay debit cards zero.
- On credit cards where the RBI has not issued regulatory mandates or has intervened on MDR, should the cost of performing transactions be delinked from the cost of funds (credit) and credit risk?
The paper noted that the RBI could be justified in recovering the cost of its investments and operational expenditure in RTGS as it involves the spending of public money.
RBI highlighted that the charges imposed on RTGS are not a source of earnings.
The paper mentioned, “RTGS is a system used mainly for large value transactions and is predominantly used by banks and large institutions / merchants to facilitate real-time settlement. Does such a system, with institutions as members, require RBI to provide free transactions?”.
It also noted that being the operator of NEFT, the RBI has invested in implementing and operating the infrastructure. Therefore, although there may not be a profit motive in operating NEFT, recovering a reasonable amount can be justified. The paper also highlighted the possibility of imposing charges on IMPS transactions.
