Timely initiation

The Reserve Bank of India (RBI) in its 'Discussion Paper on Charges in Payment Systems', has put forth a proposal for fixing charges across National Electronic Funds Transfer (NEFT), Real-Time Gross Settlement (RTGS), Immediate Payment Service (IMPS), debit and credit cards, and UPI payment platforms. The issue of charging UPI transactions is particularly notable. The UPI is currently being used in India as both a real-time fund transfer system and a merchant payment system. The initiation of the discourse around diluting the zero-MDR (Merchant Discount Rate) by the RBI is indeed a timely intervention, and its materialisation, after due deliberation, can bring the much-needed long-term stability to the UPI payment system. The stability will come on account of balancing the objective of digitisation with the interests of industry players. In 2020, as the government decided to give the initial push to digital transactions across the country, it mandated a zero-charge framework for UPI transactions. The intention is indeed served and, today, UPI accounts for 82 per cent of overall retail credit transfer volume and 23 per cent of the value. These numbers indicate two things — how quickly and expansively the UPI has spread its tentacles, and the degree of popularity it has acquired for small-scale transactions. However, it must be noted that incentivisation is one method of promoting a particular behaviour or culture, and it has limited scope. For a culture to be firmly established in the system, another attribute — balance — becomes quintessential. The exponential growth of UPI in the country is contrasted by massive revenue losses of those entrusted with driving this growth — the industry players. It is true that the government has been allocating huge sums of money over the past couple of years to shoulder the expense of digital transactions in the name of the digitisation push, but this approach is bound to fail for two reasons. Firstly, it is not at all sustainable in the long run. Secondly, the allocations made by the government are far below the actual MDR foregone. As per a Financial Express report, while the compensation budgeted for each FY22 and FY23 was Rs 1,500 crore, the actual MDR forgone stood at Rs 5,500 crore. This gap is waiting to be bridged. While it is desirable that digital transactions register high growth, it is also pertinent to make sure that the risk of them falling apart in near future is avoided. Also, the RBI is well within its right to recover the costs incurred upon transactions. If enablers of digital payment systems earn their due revenues, we can expect upgradation of systems and new facilities at a fast rate. The RBI discussion paper pointed out that "in any economic activity, including payment systems, there does not seem to be any justification for a free service, unless there is an element of public good and dedication of the infrastructure for the welfare of the nation." The zero-MDR regime has already lent the required momentum in the interest of public good. To ensure that a fair degree of buttressing still continues to operate, the RBI can put some safeguards and launch the repeal of the zero-MDR system in a graded manner. In the first place, a threshold amount can be set beyond which transactions would be charged. This will ensure that a substantial number of low-ticket transactions are exempted. Furthermore, as proposed by the discussion paper itself, a tiered approach to charging transactions can be adopted to ensure that the burden is borne proportionately. Suggestions to exempt a certain number of initial transactions per month are being floated by many but this could seemingly nudge people to keep the number of their transactions limited. Before all these things, a fair time window should be planned to precede the charging of UPI payments. The RBI's intervention is indeed a timely one. It not just protects the interest of industry but also seeks to provide sustainability to India's digital transition. The discussion paper is open for suggestions. Based on the inputs from experts, a fair and balanced system should be put in place.