No Proposal To Make UPI Payments Chargeable: RBI Governor

SUMMARY

In July, Governor Malhotra had flagged sustainability concerns related to free UPI, saying that “someone” would have to pay the costs associated with these payments

While the finance ministry has been averse to the idea of imposing an MDR, fintechs have been flagging concerns related to rising cost of facilitating high value UPI transactions

In September, UPI transactions declined 2.5% MoM to 19.6 Bn while transaction value remained almost flat at INR 24.9 Lakh Cr

Reserve Bank of India (RBI) governor Sanjay Malhotra today reiterated that there is no proposal before the central bank to make UPI payments chargeable.

“Is there going to be charges on UPI? Well, there is no proposal before us,” Malhotra said during the post-monetary policy committee (MPC) press conference.

This is the second time that the RBI governor has spoken on the matter in the past three months. In July, Malhotra had flagged sustainability concerns related to free UPI payments, saying that “someone” would have to pay the costs associated with these online payments.

“Who pays is important but not so (as) important than (as) someone footing the bill. So, it is important for us for the sustainability of the model, that whether collectively or individually someone pays,” he said at the time.

Currently, UPI payments are free, and infrastructure providers and banks have to bear the costs of processing the payments. But, fintech players have been pitching the government to levy a merchant discount rate (MDR) on online payments so the cost can be passed on to end customers or merchants.

At present, the Centre supports UPI payments by subsidising transaction costs to keep it free for end users. In March, the Union cabinet approved an incentive scheme, with an outlay of INR 1,500 Cr, for subsidising UPI payments below INR 2,000 for the fiscal year 2024-25 (FY25).

However, the finance ministry has been averse to the proposal of imposing an MDR due to concerns around digital payments taking a hit. As per a survey last year, 73% of the users said that they would stop using UPI if such a fee is imposed.

The RBI governor’s comments came on the same day as National Payments Corporation of India (NPCI) released monthly metrics for UPI. After clocking a record high in August, the number of UPI transactions declined 2.5% to 19.6 Bn in September from 20.1 Bn in the preceding month.

Payments value also remained flat at INR 24.9 Lakh Cr compared to INR 24.85 Lakh Cr in August. The average daily transaction volume rose 1.4% to 654 Mn in September from 645 Mn in the previous month.