The era of completely free digital transactions via the Unified Payments Interface (UPI) may not last forever
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MUMBAI — The era of completely free digital transactions via the Unified Payments Interface (UPI) may not last forever, RBI Governor Sanjay Malhotra signalled on Friday, adding that the UPI interface should be made financially sustainable in the future.
The UPI system is currently free for users, with the government covering costs by subsidising banks and other stakeholders that support the payments infrastructure. “Costs will have to be paid. Someone will have to bear the cost,” he said at an event in the financial capital.
“Payments and money are a lifeline. We need a universally efficient system. As of now, there are no charges. The government is subsidising various players such as banks and other stakeholders in the UPI payments system. Obviously, some costs have to be paid,” Malhotra said.
“Any important infrastructure must bear fruits,” he said, adding that for any service to be truly sustainable, “its cost should be paid whether collectively or by the user."
This unprecedented scale has added pressure on the backend infrastructure, much of which is maintained by banks, payment service providers, and the National Payments Corporation of India (NPCI).
With no revenue stream from UPI transactions due to a government-mandated policy of zero merchant discount rates, industry players have repeatedly flagged the model as financially unsustainable.
The Merchant Discount Rate (MDR) – a fee charged to merchants by banks for processing digital payments, typically ranging from 1 per cent to 3 per cent of the transaction value – was waived off on RuPay debit cards and BHIM-UPI transactions by the government in December 2019. It is unclear whether MDR will be reintroduced or if users will also have to bear the cost of UPI infrastructure.
The RBI governor’s comments come at a time when UPI surpassed global payments giant Visa. India became the global leader in fast payments, as UPI processed over Rs 24.03 lakh crore in payments through 18.39 billion transactions in June.
UPI now powers around 85 per cent of all digital transactions in India and nearly 50 per cent of all real-time digital payments across the world.