Unified Payments Interface, or UPI, became popular right away in India. UPI, introduced as a card payment substitute and another digital payment option, is now usable outside India. Because payments are resolved so rapidly, and there are no fees associated with making these payments, it has been profitable. That may alter shortly. UPI payment monetization has been proposed by the Reserve Bank of India.

According to the RBI’s latest suggestion, the central bank is considering charging a charge for each transaction of funds made via the UPI mechanism. The goal is to examine the likelihood of recouping the expense of operating and investing in the UPI infrastructure. According to the RBI, financial transfers made using UPI are comparable to those made using IMPS (Immediate Payment Service). Hence it stands to reason that UPI should be charged the same fees as IMPS.

RBI Recommendation

The Reserve Bank asked for public input on fees and levies on payment systems to make such transactions inexpensive and financially rewarding for the parties involved. The payment systems are the Unified Payments Interface, the Real Time Gross Settlement (RTGS) system, the National Electronic Funds Transfer (NEFT) system, and the Immediate Payment Service (IMPS) (UPI). Other payment methods include debit cards, credit cards, and prepaid payment instruments (PPIs).

In other words, to handle settlement risk, banks must build up suitable mechanisms to support PSO. As a result, the banks wind up spending a lot of money and resources, which results in higher expenses. Customers must pay it back to RBI. As per the RBI, “there appears to be no rationale for free services in any economic activity, including payment systems, unless the infrastructure is dedicated to the welfare of the nation.”

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However, RBI wants to know who would pay those expenses through the paper, obliquely suggesting that everyone should. However, according to RBI’s study, it is debatable who should foot the bill for building and maintaining such infrastructure. Since the document discusses recovering the costs incurred in building up complete payment systems, the RBI also seeks to impose a specific tax on currently free debit card transactions.

The RBI is seeking opinions on whether fees should be determined by the RBI or the market. Payments made through different payment methods incur different MDRs for a merchant. People-to-merchant (P2M) transactions on UPI cost Rs 800, and the RBI states that stakeholders pay Rs 2 to process them.

With the deferred net settlement, where the merchant receives the funds on a T+n basis, the RBI has stated that a debit card transaction is comparable to a regular funds transfer payment transaction. As such, the transaction fees should be assessed similarly to a regular funds transfer. The costs might be the same for all debit card transactions, regardless of transaction size, the RBI has said, since the cost to the issuer/acquirer does not often rely on the transaction value of a debit card transaction.

Payment instrument issuers, payment acquirers, and payment system operators (PSOs) are three crucial payment service providers in a merchant payment system. PSO includes NPCI, PPI issuers, and card networks.

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