RBI Moves to Lower Cost of Digital Payments, Take UPI to More Users

The Reserve Bank of India (RBI) is set to form a panel to study the charges levied on digital payments suggesting the regulator is not comfortable with the current structure that many believe is expensive, and not in line with the surge in volumes.

It would add features to UPI transactions, currently at the lowest price point, potentially eroding further the prospects of several fin tech players.

The RBI said it will release a discussion paper on various charges levied by banks and institutions for all kinds of digital transactions through credit cards, debit cards, wallets and Unified Payments Interface (UPI).

“It is proposed to release a discussion paper on various charges in the payment system to have a holistic view of the issue involved and possible approaches to mitigating the concerns to make digital transactions more affordable,” the regulator said.

At present, the consumer does not pay any charge while swiping her debit or credit card and making UPI payments. But wallets and other PPI instruments charge nearly 2%-2.5% for processing payments. Currently UPI payments cannot charge MDR (merchant discount rate). Debit card MDR is capped at 0.9%, while there is no cap on credit card MDR in India.

 “These is very negative for fin techs in the payments space; Pay TM, for example, has 70% of gross revenues coming from payments in FY21. It is a big risk if wallet charges are regulated and reduced,” said Suresh Ganapathy, associate director, Macquarie Capital.

“The message is loud and clear from the Government and the RBI. Be it through UPI, AA, Aadhaar, India digital stack – eventually transaction costs are heading toward NIL.”

Separately, the RBI also said that it will launch UPI-based payment products for feature phone users, leveraging on innovative products from the RBI’s Regulatory Sandbox on Retail Payments.

It will also help make the process flow for small value transactions simpler through a mechanism of ‘on-device’ wallet in UPI applications. It also proposed to enhance the transaction limit for payments through UPI for the Retail Direct Scheme for investment in G-secs and Initial Public Offering (IPO) applications from Rs.2 lakhs to Rs.5 lakhs.

“The acceptance of UPI payments through feature phones widens the horizon of financial inclusion in India and enables a digital footprint for the masses, a prerequisite for evaluating the credit worthiness of an individual,” Bipin Preet Singh, MD, MobiKwik. “It is a game-changer of sorts for the common man who is now eligible for other financial services such as Buy Now Pay Later, Digital Insurance and Small Ticket loans as well.”

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