No Consideration To Levy Charges On UPI: Finance Ministry

No Consideration To Levy Charges On UPI: Finance Ministry

SUMMARY

The concerns of the service providers for cost recovery have to be met through other means: Finance Ministry

The speculation around UPI became rife last week when the RBI floated a discussion paper on ‘Charges in Payment Systems’, including UPI

The RBI paper, however, was floated for seeking public opinion on introducing charges on UPI and the nature and quantum of the same

The Union Finance Ministry has quashed all rumours of the government potentially levying charges on UPI by stating that there is no consideration on the matter.

“UPI is a digital public good with immense convenience for the public & 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 statement on its official Twitter handle.

The finance ministry added in a subsequent tweet that the government provided financial support for the digital payments ecosystem last year and has announced the same this year as well. 

The speculation around UPI became rife last week when the Reserve Bank of India (RBI) floated a discussion paper on “Charges in Payment Systems”. Among other things, the paper asked for public opinion on charging a small fee for transacting on UPI. The government has maintained a zero-charge policy on UPI since January 2020.

The aforementioned RBI paper has asked for feedback on the same and whether to subsidise the costs incurred for enabling UPI transactions. Further, the discussion paper also sought opinion on the quantum and nature of the charges on UPI, if introduced.

To be sure, UPI enablers have to incur the costs of enabling a digital transaction. There are many instances of cooperation involved across banks, tech stacks and digital payments platforms, which requires a changeover of information that ultimately costs money regardless of the size of the transaction.

Currently, one or more of the payment system participants have to bear the aforementioned costs. According to the RBI, either the cost gets passed on to the merchant as a merchant discount rate (MDR) or to the customer as customer charges.

For the uninitiated, MDR is one of the ways in which digital payments enablers can recover the costs incurred by charging the merchants the fees for every digital transaction that happens at their point of sale (PoS).

Currently, MDR is charged on credit and debit card transactions. The cost levied is usually a small percentage of the total transaction; at most, it is 2%.

With a possible credit card-UPI linkage on the cards, MDR will definitely see deployment in the UPI-enabled digital lending ecosystem. The RBI also brought the focus back on MDR in its Payments Vision 2025 document.

However, customer charges are still out of the question and the public opinion on the matter is very clear as well. According to the most recent figures from the National Payments Corporation of India (NPCI), India saw 628 Cr UPI transactions worth INR 10.63 Lakh Cr.

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