The payments ecosystem, including banks and payment platforms, are in favour of graded charges on UPI transactions, which are market-driven instead of being fixed beforehand.

“A point of consensus is that there should not be anything called MDR (merchant discount rate). It should be market-driven, and if ever the RBI wants to legislate, it should be on the inter-change and not on MDR,” said Vishwas Patel, Chairman of the Payments Council of India.

He added that PCI is in the process of submitting its detailed feedback to the Reserve Bank of India.

The feedback is in response to comments sought towards an RBI discussion paper on charges on payment systems, by October 3. The paper has proposed introducing graded charges on payment services, including UPI transactions, to support and incentivise both users and service providers.

Market-driven charges

While the government has mandated a ‘zero-charge framework’ for users of UPI effective January 2020, banks and payment platforms incur a cost on each transaction.

“We strongly feel that there should be a market-led fee that should be levied on UPI transactions. However, there should be a level playing field for the charge,” said an industry person.

To ensure this, small value transactions below ₹100-200 could be free of cost, whereas those of a higher value could have a graded charge based on the value of the transaction, they added.

AP Hota, former MD and CEO of NPCI, said because micropayments make up a bulk of UPI transactions, a product-wise pricing approach would be better suited than a broad-brush approach.

However, he too believes that transactions up to ₹200 — which constitute 45-50 per cent of total transactions — can be made free, as both the RBI and government would like to encourage customers and merchants to continue making such transactions. However, with transactions of larger ticket sizes, the industry strongly feels that the current mechanism of offering the services free of cost will not be sustainable for long.

“Without such a mechanism (for fees), the incentive to improve our back-end systems is barely there, and what could be a revenue accretive business is turning out to be otherwise,” another person in the know said.

Last month, Axis Bank MD and CEO Amitabh Chaudhry had said the “entire profit and loss opportunity” in payments has been removed. This has forced market players to use payments as a platform to make money somewhere else, which will gradually ensure that only larger players are able to survive.

Need-based subsidy

Another issue that stakeholders seem to be at consensus on is that if transactions via UPI and RuPay debit cards are subsidised using tax payers’ money, then the subsidy should not be extended to larger merchants, but only to the smaller merchants that need it, Patel said.

Others opined that last mile processing — which is currently limited to a few banks — should be opened up for everyone in order to improve operational efficiency and cost effectiveness.

Currently, only State Bank of India, Bank of Baroda, Punjab National Bank, ICICI Bank, HDFC Bank and Axis Bank have access to last mile processing.

(With inputs from K Ram Kumar)

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