reserve Bank of IndiaThe recent discussion paper for re-evaluation of charges levied on various digital payment systems aims to balance the competing interests of payers, beneficiaries and intermediaries providing these services.
It solicits public views on what might be the best way to develop a framework that is convenient, secure and economical for users, reasonably covers the cost of running reliable systems, and allows private operators to operate at a time encourages digital transactions in Record highs.
Every time you swipe your card or scan a QR code while making a purchase, or transfer a payment to your seller or receive it as a business, an intermediary – called a Payment Service Provider (PSP). Known as – ensures that the other party receives the payment and the transaction is completed. for its efforts, psp Charges a fee from either party (whether to cover its overhead, or to invest and run the business and make a profit). PSPs themselves are a heterogeneous lot – they include card networks, National Payments Corporation of India (NPCI), prepaid payment instrument (PPI) issuers, banks and non-banks issuing cards and wallets or payment instruments accepting and payment aggregators and gateways. Huh.
Broadly speaking, in a fund transfer payment system, charges are collected from the originator of the payment instruction. In a merchant payment system, they are deducted from the amount receivable by the merchant and this is known as the merchant discount rate.mdr,
According to the discussion paper, costs and returns are determined by the ownership structure of the PSP. For example, RTGS And NEFT is owned and operated by RBI. IMPS, Rupay, joint payment interface ,is i), etc. are run by the not-for-profit NPCI and still others, private for-profit firms.
One particularly interesting case in this is UPI. UPI has witnessed a record 380% CAGR in the last 5 years, representing ~46 billion in transaction volume and ~84 trillion value by FY 2022, which is 64% of the total digital volume in India.
The government made a zero-fee framework mandatory for UPI transactions with effect from January 1, 2020. Furthermore, the Finance Ministry on August 22, 2022 – after the release of the discussion paper – stated that it had no plans to levy charges on UPI. Payments and will continue to provide financial assistance to promote the digital payments ecosystem in the country.
For FY 2022, it had set aside Rs 1,500 crore as a financial incentive for digital payments. It has extended this support this financial year, which said, it can be used to claim zero MDR revenue loss on UPI, set up the necessary infrastructure for merchants to accept digital payments. To encourage and promote digital payments for toll collection. payment.
Even before this, India’s digitization thrust has contained regular interventions by the government and regulators, to reduce the fees levied and ensure higher acceptance of payment modes among customers and merchants.
For example, in September 2017, RBI changed the rules for debit cards to reduce the MDR. Another change came in January 2018, wherein different rates were applied on physical and QR-based transactions based on the merchant’s turnover.
However, the increasing pace of digital payments has probably prompted the RBI to keep the discussions open to the public, revisit the system with stakeholders, remove any conflicts and further streamline the processes.
While the discussion paper leaves options open, the detailed questions asked below each of the systems described illustrate the central bank’s line that for an efficient payment system to operate at this scale, viability for all parties to a transaction It is equally important to make sure. As well as reasonable returns for PSP.
Under UPI, it is pointed out that being a system similar to IMPS, it can be argued that similar charges can be levied, at least for fund transfer transactions, using a tiered structure.
It has sought suggestions on various systems (open till October 3) based on a total of 40 questions, ranging from the nature and reasonableness of charges under each, which are desirable, who should administer them, should they be regulated, and which can be monitored for amendment with the consent of the stakeholders.
Users and service providers alike will carefully consider the outcome of this discussion which is expected to result in rationalization of charges based on the responses received.
However, given the rapidly increasing reliance on digital payments in the country, the research does not see any material impact on transaction volume.
(Aniket Dani is the Director of CRISIL Research)