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UPI payment charges

GS Paper 3

Syllabus: Indian Economy and issues relating to planning

 

Source: RBI

Direction UPI is an important topic. Know how UPI work? How is it different from other modes of electronic payment?

 Context: Recently RBI came out with a discussion paper seeking stakeholder views on charges in payment systems.

Zero charge framework: Most other modes of digital retail payments attract a charge on transactions. But the government has mandated a “zero-charge framework” for UPI transactions (from 2020), meaning charges on UPI for users as well as merchants (on MDR) being nil.

 

Government’s view:

      • Terming UPI services as a “digital public good”, Finance Ministry clarified that there is “no consideration” in the government to levy any charges for Unified Payments Interface (UPI)

 RBI’s view:

      • It views that subsidy on these payments may have to be withdrawn as digital payment increases, thus increasing the subsidy burden.
      • RBI had asked stakeholders if the merchant discount rate (MDR), a fee paid by merchants to acquiring banks, should be brought back for UPI transactions.
        • MDR, or merchant discount rate, on UPI transactions, has been a long-standing demand of the payments industry.
      • Recently, the RBI allowed UPI on credit cards as well starting with NPCI’s RuPay cards.

Benefits of charges on UPI and MDR:

      • It will boost the payment system as more private investors will be pitching in.
      • Save government finances on subsidies: The government allocated Rs 200 crore for reimbursement of charges towards RuPay debit card and UPI transactions.
      • In 2021-22, it had budgeted Rs 1,500 crore towards this.

 Demerits:

      • It will discourage booming UPI transactions by citizens
      • It will dampen the digital ecosystem based on UPI/MDR

 What is UPI?

Unified Payments Interface (UPI) is an instant real-time payment system, allowing users to transfer money on a real-time basis, across multiple bank accounts without revealing details of one’s bank account to the other party.

      • UPI is currently the biggest among the National Payments Corporation of India (NPCI) operated systems including National Automated Clearing House (NACH), Immediate Payment Service (IMPS), Aadhaar enabled Payment System (AePS), Bharat Bill Payment System (BBPS), RuPay etc.

 

Insta Links

UPI

Mains Links:

Q. Link the topic with Fintech Industry (important for this year’s mains) and the digital ecosystem.

 

Q. India’s progress in payment systems will provide a useful backbone to make a state-of-the art central bank digital currency (CBDC), but challenges remain. Discuss. (250 Words)

 

Prelims Links:

Know the basics of UPI and the agencies who operate it. Also, know a few current affairs e.g. (Nepal will be the first foreign country to adopt the UPI system)

Which of the following is the most likely consequence of implementing the ‘Unified Payments Interface (UPI)’?

(a) Mobile wallets will not be necessary for online payments.

(b) Digital currency will totally replace physical currency in about two decades.

(c) FDI inflows will drastically increase.

(d) Direct transfer of subsidies to poor people will become very effective.

 

Answer: A

UPI allows direct payment from bank account to merchant account. So the need for wallet will not longer be required.