Charges on UPI transactions?

Charges on UPI transactions?

News: Recently RBI came out with a discussion paper seeking stakeholder views on charges in payment systems. Most other modes of digital retail payments attract a charge on transactions. But the government has mandated a “zero-charge framework” for UPI transactions (from 2020), meaning charges on UPI for users as well as merchants (on MDR) being nil.

What is UPI?
• Unified Payments Interface (UPI) is an instant real-time payment system, allowing users to transfer money on a real-time basis, across multiple bank accounts without revealing details of one’s bank account to the other party.
• UPI is currently the biggest among the National Payments Corporation of India (NPCI) operated systems including National Automated Clearing House (NACH), Immediate Payment Service (IMPS), Aadhaar enabled Payment System (AePS), Bharat Bill Payment System (BBPS), RuPay etc.

What is RBI’s view?
• It views that subsidy on these payments may have to be withdrawn as digital payment increases, thus increasing the subsidy burden.
• RBI had asked stakeholders if the merchant discount rate (MDR), a fee paid by merchants to acquiring banks, should be brought back for UPI transactions.
• MDR, or merchant discount rate, on UPI transactions, has been a long-standing demand of the payments industry.
• Recently, the RBI allowed UPI on credit cards as well starting with NPCI’s RuPay cards.

What is government’s stand?
• The government of India looks at UPI services as a ‘digital public good’.
• The finance ministry cleared that there is ‘no consideration’ in the government to levy any charges on UPI.

Benefits of charging fees on UPI:
• It will boost the payment system as more private investors will be pitching in.
• Save government finances on subsidies - 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.
• However, if charges are levied it will discourage UPI transactions by citizens and it will further dampen the digital ecosystem based on UPI.