UPI An ‘Incredibly Painful Experience’ For Ecosystem Stakeholders: Mastercard CFO

Card network Mastercard’s chief financial officer (CFO) Sachin Mehra believes that the Unified Payments Interface (UPI) remains an ‘incredibly painful experience’ for ecosystem participants despite being ‘fantastic at many levels’.

Speaking at a recent UBS conference, Mehra lauded the UPI for fueling digital payments in India but raised questions over the commercial sustainability of the payments stack. 

“It is an incredibly painful experience for ecosystem participants who all end up losing money as part of that proposition,” said Mehra as per Techcrunch. 

Mastercard’s concerns with UPI’s monetisation are largely based around the zero processing charge model (zero-merchant discount rate (MDR) regime) adopted by the digital payments platform. UPI does not charge any fees to users, either merchants or customers, for processing payments.

On the other hand, card networks such as Mastercard and Visa charge merchants a specific fee for processing card payments. As a result, small shop owners have largely moved to the UPI as it offers a fast and cheaper mode of payment.

However, the Centre has earmarked some incentives to subsidise the operations of fintech companies which have to bear the cost of maintaining the digital payments infrastructure. 

Alongside, the National Payments Corporation of India (NPCI) has also announced a slew of new offerings and products to deepen the penetration of digital payments in the country. With the government push and growing smartphone usage, UPI has emerged as a popular mode of digital payments with transactions soaring to more than 1,000 Cr monthly. 

Curiously, this is not the first time that the card network has flagged the monetisation model of UPI. 

In May this year, Mehra said, “The banks who actually enable those payments tend to lose money on those transactions. So it’s a proposition which we are asking the question is this long-term sustainable or not. And who knows? We’ll see where it goes. But in the meantime, debit continues to flourish in that market, as does credit.”

Meanwhile, fintech industry bodies have also been batting for more incentives to support the growing infrastructure and associated costs which have led to piling losses for them. However, many fintechs have built innovative products on top of the UPI stack to create alternative revenue streams and offset heavy costs. 

A case in point is the soundbox offering, first pioneered by Paytm, which has created a recurring revenue pipeline for fintech companies. Others have also leveraged the payment data to create underwriting models to offer credit and other financial facilities to their customers and merchants. In addition, there have also been a slew of B2B financial product suites developed by these firms. 

Notwithstanding the questions about economic viability of UPI, global research firm AllianceBernstein reportedly recently argued that nearly all stakeholders have benefited from the pivot to digital payments, adding that such benefits outweighed the costs involved in facilitating UPI transactions.

The report also claimed that banks have benefited from cost savings due to a sharp decline in (expensive) ATM transactions. It also claimed that the Centre has been able to save on currency printing costs and the shift to digital payments has brought more efficiency in tax collection.

Meanwhile, UPI logged the second consecutive month of more than 1,000 Cr transactions in September, processing 1,056 Cr transactions worth INR 15.8 Lakh Cr. PhonePe, Google Pay and Paytm continued to lead the charts as the biggest UPI payment processors in the country last month.