Finance Ministry on Sunday made it clear that there is no thinking of imposing a charge for Unified Payment Interface (UPI) transactions. This statement came two days after RBI raised the issue of levying charges through a discussion paper.

“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 tweet. On August 17, RBI said in a discussion paper that UPI as a funds transfer system is like IMPS. Therefore, “it could be argued that the charges in UPI need to be similar to charges in IMPS for fund transfer transactions. A tiered charge could be imposed based on the different amount bands.”

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The central bank emphasised that it has not issued instructions regarding charges for UPI transactions. The Government has mandated a zero-charge framework for UPI transactions from January 1, 2020. This means that charges in UPI are nil for users and merchants alike. The bank also said that in order to elicit general feedback, a few questions on what approach should be adopted, have been included in the discussion paper.

It said that PSPs (payment service providers) in any payment system should earn income for continued operations to facilitate investments in new technologies, systems and processes. This applies irrespective of the system being operated by a public or private sector entity. The paper also highlighted that the approximate cost involved in processing a UPI P2M transaction with an average value of ₹800 is ₹2, which does not include any incentive to boost digital payment.

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The paper explained that UPI as a fund transfer system enables the real-time movement of funds. Also, as a merchant payment system, it facilitates real-time settlement, as against the T+n settlement cycle for card settlements. However, the settlement among participant banks in UPI is on a deferred net basis. Facilitating this settlement requires the PSO and banks to implement adequate systems and processes to address the settlement risk. This involves additional costs to the system, it added

The paper acknowledged that merchants’ payments using UPI do not require the installation of costly infrastructure as UPI QR codes are used. The cost of merchant infrastructure for UPI is lower than that of a card-based acceptance infrastructure. Keeping all these in mind, the paper posed three questions for feedback. First, in the context of zero charges, is subsidising costs a more effective alternative? Second, f UPI transactions are charged, should MDR for them be a percentage of transaction value, or should a fixed amount irrespective of the transaction value be levied? And third, if charges are introduced, should they be administered (say, by RBI) or be market determined?

All these gave an impression that RBI is in favour of charging UPI transactions, following which the Ministry came out with clarifications. “The Govt had provided financial support for digital payment ecosystem last year and has announced the same this year as well to encourage further adoption of #DigitalPayments and promotion of payment platforms that are economical and user-friendly,” the Ministry said in another tweet.

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