Until a few years ago, it was hard to believe that online payments could replace cash in our daily transactions. Thanks to the Unified Payments Interface (UPI), rushing to an ATM is fast becoming a thing of the past.
Launched in 2016, the year of demonetisation demonetisation On 8 November 2016, the Indian government demonetised high-value currency notes of Rs 500 and Rs 1,000 denominations. , the instant real-time payments system developed by retail-payments operator National Payments Corporation of India (NPCI) sees six billion monthly transactions, powering two-thirds of India’s online merchant payments.
The absence of any kind of fee for both individual users and merchants is what makes UPI so popular. Fund transfers via UPI from one individual to another or to a merchant cost users nothing. But third-party payments platforms such as Google Pay, PhonePe, and Paytm*, their payment service provider (PSP) payment service provider (PSP) Payment service providers are banks that support the payments platforms banks, and the NPCI incur a total of 0.25% of the transacted amount, according according RBI Discussion Paper on Charges in Payment Systems Read more to the Reserve Bank of India (RBI).
In the year ended March 2022, the NPCI recorded recorded NPCI UPI Ecosystem Statistics Read more peer-to-merchant (P2M) transactions worth nearly Rs 16 lakh crore (~US$201 billion) on UPI. This means the cost of making a year’s worth of UPI transactions for the stakeholders must be at least about Rs 4,000 crore (~US$501 million).
Since the government put in place a zero-charge regime to promote UPI transactions in January 2020, none of these entities can transfer this cost to either merchants or users. And this remains a thorn in India’s payments story.
On 17 August, the banking regulator came out with a discussion paper discussion paper RBI Discussion Paper on Charges in Payment Systems Read more seeking the stakeholders’ views on levying charges across payments systems. The paper was widely seen as a precursor to introducing charges on UPI transactions. But four days later, the finance ministry clarified clarified The Indian Express UPI transactions to attract charges?