Why banks are worried about low-value UPI-based transactions

Banks may have withdrawn the charges introduced on UPI-based transactions, but many have questioned the need for over 20 transactions a month, and have pointed out that such charges are also levied on ATM transactions beyond a certain limit.

“As directed by the government, banks have withdrawn the charges on UPI transactions. But a closer look at the data indicates that many transactions are extremely small ticket in nature, and many of them may be done just for the purpose of getting a cashback or incentive,” said a bank executive who did not wish to be named.

Revenue generation

He also said the charges on UPI-based transactions are not for revenue generation. “Banks were not earning profit out of these charges, which amount to less than ₹ 1 crore a month for most, but these are used for maintaining the infrastructure,” he said.

Another banker pointed out that even ATM transactions beyond a specified number per month attract charges by different banks.

“With rising low-value transactions, operation costs go up as settlement and reconciliation activities increase. In such a scenario, UPI could become unviable,” he pointed out.

Rise in frauds

There are also concerns that the increasing number of low-value transactions can lead to a spurt in frauds.

The issue is being discussed at the industry level, and could be taken up with the authorities later. Amongdigital payment channels, UPI is becoming the most popular. According to data with the National Payments Corporation of India, UPI scaled a new peak of 161 crore transactions, involving ₹2.98-lakh crore, in August this year.

Last month, the Central Board of Direct Taxes asked banks to stop collection of charges and also refund the same from January 1. It also cautioned that such collection would attract a penalty.

“Banks are, therefore, advised to immediately refund the charges collected, if any, on or after January 1 on transactions carried out using the electronic modes prescribed under section 269SU of the IT Act, and not to impose charges on any future transactions carried through the said prescribed modes,” the CBDT said in a circular dated August 30.

Some private sector lenders such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Axis Bank had introduced charges between ₹2.5 to ₹ 5 for person-to-person UPI-based payments exceeding 20 transactions per month. Public sector banks do not levy such charges

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