Saturday, October 1, 2022

UPI transactions must remain free forever

UPI is one innovation from India that has left behind and surprised even developed countries and is likely to emerge as a strong vehicle for Indian technology driven initiatives in the near future.


It is good that the RBI has sought public feedback on the suggestions relating to imposition of charges on different payment systems, including UPI.

While it is nobody’s case that no charges should be levied on any type of payment system, any suggestion of imposing a charge on small ticket UPI transactions would be a big dampener on the expanding digital economy of the country.

One reason why digital transactions through credit cards were not taking roots in India and had largely remained the sole preserve of richer classes was the hefty charge imposed on the merchants, and in turn on the end user.

UPI has revolutionized the entire payment system largely because it remained free and entirely subsidized by the government.

The RBI has sought feedback on whether in the context of zero charges subsidizing costs is a more effective alternative. The answer is yes. Because any subsidy that the government gives to the UPI participants helps the digital economy expand in a big way. It is a subsidy that has been bringing increasing returns. In no time, UPI has become something that even the US covets. UPI is one innovation from India that has surprised even developed countries and is likely to emerge as a strong vehicle for Indian technology driven initiatives in the near future.

The second feedback sought by the RBI is on whether MDR for UPI should be a percentage of transaction value or a fixed amount.

Frankly, Town Post is of the opinion that there should never be any charges on UPI transactions whatsoever.

There are already charges on NEFT, IMPS and other payment systems. Those charges should be used to subsidize all UPI transactions.

A customer paying Rs. 10 to a tea seller would be unwilling to do so if any amount more than Rs. 10 is imposed as cost on him.

Most of the UPI transactions are small ticket transactions. And these transactions are bringing about the ground level transformation in the Indian economy.

It is gladdening to see even an illiterate woman running a small roadside temporary shop with a UPI QR code proudly displayed in front.

It would be foolish to extract a price for ease in business from such small players who are trying to adopt a big digital revolution.

The RBI and the government should not listen to the Banks and other intermediaries who are rooting for imposing a cost on even small ticket UPI transactions.

And the last question the RBI has sought a feedback on is whether if the charges are introduced, should they be administered (say, by RBI) or be market determined.

And the answer must remain that no charges be introduced. Making it market determined would sound the death knell for UPI transactions.

Govt and RBI would do well if they ensure that the current arrangements for UPI remain in place. However, they should continue devising ways to make other payment systems sustainable. Even UPI transactions, if needed, should be subsidized from the charges collected from other big ticket transactions through NEFT, IMPS and card networks.

Screenshot 2022 08 21 12.21.17 PM
BHIM and UPI have transformed the entire payment system and structure in India at the ground level.

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