Less than a week after the Reserve Bank of India (RBI) came out with a discussion paper seeking stakeholder views on charges in payment systems, the Finance Ministry Sunday clarified that there is “no consideration” in the government to levy any charges for Unified Payments Interface (UPI) services.
What did the RBI discussion paper say?
In a discussion paper released on Wednesday, the RBI had asked stakeholders if merchant discount rate (MDR), a fee paid by merchants to acquiring banks, should be brought back for UPI transactions. The RBI paper, seeking feedback on the fee structure for a range of digital payment services through a set of 40 questions, is open for comments till October 3. The feedback received would be used to guide policies and intervention strategies, it said. However, the RBI had said that at this stage, it is “reiterated that RBI has neither taken any view nor has any specific opinion on the issues raised in this discussion”. It covered all aspects relating to charges in payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) system, Real Time Gross Settlement (RTGS) system and Unified Payments Interface (UPI) and various payment instruments such as debit cards, credit cards and Prepaid Payment Instruments (PPIs), etc.
What is MDR?
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MDR, or merchant discount rate, on UPI transactions has been a long-standing demand of the payments industry. Most other modes of digital retail payments attract a charge on transactions. Currently, the government has mandated a “zero-charge framework” for UPI transactions, with effect from January 1, 2020. This translates into charges on UPI for users as well as merchants being nil. In its discussion paper, the RBI has approximated that with an average value of Rs 800 for a merchant transaction, various stakeholders enabling the UPI transaction, including the payer and beneficiary banks, the third-party app, and the NPCI, incur a cost of Rs 2. As per official NPCI data, in July, there were 628.84 crore UPI transactions representing a value of Rs 10.63 lakh crore. It has 338 banks live on the platform. Recently, the RBI allowed UPI on credit cards as well starting with NPCI’s RuPay cards.
What was the government’s argument?
Terming UPI services as a “digital public good”, the Finance Ministry stepped in on Sunday to clarify that the concerns for the service providers for cost recovery have to be met through other means. “UPI is a digital public good with immense convenience for the public and productivity gains for the economy. There is no consideration in Govt to levy any charges for UPI services. The concerns of the service providers for cost recovery have to be met through other means,” the ministry said in a tweet. It further said that the government had provided financial support for digital payment ecosystem last year and has announced the same this year as well to “encourage further adoption of #DigitalPayments and promotion of payment platforms that are economical and user-friendly”.
What has the government done so far to promote UPI payments?
In the Budget speech for 2022-23, Finance Minister Nirmala Sitharaman had said: “The financial support for digital payment ecosystem announced in the previous Budget will continue in 2022-23. This will encourage further adoption of digital payments. There will also be a focus to promote use of payment platforms that are economical and user friendly”. The government allocated Rs 200 crore for reimbursement of charges towards RuPay debit card and UPI transactions. In 2021-22, it had budgeted Rs 1,500 crore towards this.