Why Making UPI Transactions Chargeable Is A Bad Idea
The Reserve Bank of India (RBI) has invited feedback from the public on the various changes proposed in the payments system, including the possibility of imposing tiered charges on transactions done through the Unified Payments Interface (UPI).
According to the RBI, the public can provide their feedback through email on or before October 3, 2022.
"The feedback received would be used to guide policies and intervention strategies," the RBI said in a statement.
The RBI is mulling a tiered-fee structure ¡°based on different amount bands¡± via UPI.
¡°UPI, as a funds transfer system, is like IMPS. Therefore, it could be argued that the charges in UPI need to be similar to charges in IMPS for fund transfer transactions. A tiered charge could be imposed based on different amount bands,¡± the central bank said in the discussion paper.
While it is yet to be decided if UPI payments will become chargeable and if yes, how much, it will take away one of the key benefits that made the platform a runaway success in the first place.
How UPI became India's go to platform
UPI, which was launched by the National Payments Corporation of India (NPCI) in 2016 made digital payments easier by making money transfers instantly from one account to another.
It was mobile-first and used UPI IDs, QR Codes, and mobile numbers linked to users' bank accounts to make the transactions.
UPI made digital payments more democratic and accessible to the not-so internet-literates, which so far other NPCI platforms like RTGS and IMPS couldn't.
When UPI launched the platform had 21 banks onboard, which now has grown to 338.?
Two major incidents post the launch of UPI - the demonetisation and COVID-19 have helped it grow exponentially, with even the neighbourhood brick-and-mortar stores who would have never accepted anything other than cash payments having multiple QR codes at their tables.
UPI transactions hit new record
Earlier this month, the NPCI said that UPI recorded over 6.28 billion transactions in July 2022, a new record since the service was launched in July 2016.
In July 2021, the number of transactions recorded was 3.24 billion, which increased to 6.28 billion in July 2022.
PhonePe, Google Pay and Paytm accounted for 94.8% of UPI transactions in India.
UPI is free, but at what cost?
Unlike credit cards, with charges around 2% from the merchants, UPI has so far, remained free for businesses as well.
But according to the RBI, different stakeholders collectively incur a cost of 2 rupees to process a UPI person-to-merchant transaction with an average value of Rs 800.
So far PhonePe is the only UPI player that charges users for transactions, which is limited to mobile recharge of Rs 50 and above.
UPI goes global
UPI's future looks bright with the recent announcement to link credit cards, starting with RuPay cards. UPI is also slowly making its presence felt globally with more countries likely to embrace the platform in the coming days.
But making UPI transactions chargeable is likely to be a deal-breaker for many, especially for small businesses.
UPI set to have competition
Another, lesser-talked advantage UPI had was that it was almost a monopoly and the only limited competition it had, in the initial days was against wallets, in which users had to add money first and could only transfer to another user's wallet from the same provider.
This is soon going to change as private UPI rivals are on their way.
The RBI, under the 'New Umbrella Entity' (NUE) for retail payments, has allowed private players to launch their own payment platforms.
A total of six consortiums, with some of the biggest businesses and banks in India, have applied for NEU licences and their proprietary platforms are being created.
Once they launch, UPI will have strong competition and making payments through its platform will only help users migrate to another one.
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