Finance Department Allays Concerns Over UPI Fees, Says Suppliers Could Seek ‘Other Ways’

After the Reserve Bank of India (RBI) released a discussion paper on fees in payment systems last week, the Ministry of Finance clarified on Sunday that the government was not considering levying fees for payment services. the unified payment interface (UPI).

In a working paper released on Wednesday, the RBI had asked stakeholders whether the Merchant Discount Rate (MDR), a commission paid by merchants to acquiring banks, should be reinstated for UPI transactions. MDR on UPI transactions has been a long-standing request from the payments industry.

Most other retail digital payment methods incur fees on transactions. Currently, the government has mandated a “no fee framework” for UPI transactions, effective January 1, 2020. This results in fees on UPI for users as well as merchants.

The RBI paper, which seeks comments on the fee structure for a range of digital payment services through a set of 40 questions, is open for comment until October 3. Feedback received would be used to guide policies and intervention strategies, he said.

However, the central bank had said that at this stage it is “reiterated that RBI has taken no position or has any specific opinion on the issues raised in this discussion”.

Calling UPI services a “digital public good,” the Department of Finance intervened on Sunday to clarify that service providers’ concerns about cost recovery must be addressed by other means. “UPI is a digital public good with immense convenience for the public and productivity gains for the economy. There is no consideration for the government to levy fees for UPI services. cost recovery must be met through other means,” the ministry said in a tweet.

He further said that the government provided financial support to the digital payment ecosystem last year and announced the same this year to “encourage the adoption of #DigitalPayments and the promotion of cost-effective payment platforms and friendly”.

The RBI, while releasing the working paper, had said that in “any economic activity, including payment systems”, there appears to be no justification for a free service, “unless there is an element of public good and dedication of the infrastructure to the welfare of the nation.” “But who should bear the cost of setting up and operating such infrastructure is a moot point,” the banking regulator said in the newspaper.

In its working paper, the Reserve Bank estimated that with an average value of Rs 800 for a merchant transaction, various stakeholders enabling the UPI transaction, including paying and beneficiary banks, third-party application and NPCI, incur a cost of Rs 2.

According to official data from the National Payments Corporation of India (NPCI), in July, there were 628.84 crore of UPI transactions worth Rs 10.63 lakh crore. It has 338 live banks on the platform. Recently, the RBI also allowed UPI on credit cards, starting with NPCI’s RuPay cards.

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In her Budget Speech for 2022-23, Finance Minister Nirmala Sitharaman said, “Financial support for the digital payment ecosystem announced in the previous budget will continue in 2022-23. This will encourage further adoption of digital payments. Emphasis will also be placed on promoting the use of cost-effective and user-friendly payment platforms”.

The government has allocated Rs 200 crore for reimbursement of fees related to RuPay and UPI debit card transactions. In 2021-2022, it had budgeted Rs 1,500 crore in this regard.

The RBI Working Paper covers all aspects related to fees in payment systems such as Immediate Payments Service (IMPS), National Electronic Funds Transfer System (NEFT), Real Time Gross Settlement System (RTGS) and UPI, as well as various payment instruments such as debit cards. , credit cards and prepaid payment instruments (PPI), etc.

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