Indian government may consider a 0.3% uniform digital payment facilitation fee to fund the infrastructure require for such transactions and also to ensure financial viability of the UPI payment system, suggest a study by IIT Bombay.
The facilitation fee of 0.3% can generate around Rs 5,000 crore in 2023-24, said the study title ‘Charges for PPI-based UPI payments–The Deception’.
As per study, which analyses the impact of the decision of the National Payments Corporation of India (NPCI) to introduce interchange fee on payments through mobile wallets, argue that the payments receive by merchants should remain ‘unpolluted’ whether they are from UPI directly or through prepaid e-wallets.
The NPCI, with effect from 1st April, 2023 introduce an interchange fee of 1.1% on transaction amount for usage of prepaid payment instruments for making payments through UPI to merchants.
These will apply on prepaid wallet-based UPI merchant transactions.
Rather than thrusting the operational expenses onto the merchants and creating a disparity, it should be borne by the prepaid wallet user, thereby never introducing a situation similar to passive smoking.
This will keep all UPI-based payments receive by merchants unpollute and unburden of merchant discount rate (MDR).
According to the IIT Bombay Technical Report, the absence of an upfront payment-surcharge would lead to an overall increase in the selling price for all, even those who pay through plain vanilla UPI (normal UPI).
As a result, the business cost of merchant will go up.
The study made a case for introducing 0.3% facilitation fee on digital payments which could generate as much as Rs 5,000 crore in fiscal 2023-24.
So, as per the present law no bank or system provider who operates UPI (unified payments interface) shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using UPI as a mode of payment.
So bank account transaction and payment on same wallet is free as of now.
The banks and system providers had tried to interpret the UPI-Law in a way that suite them.
The players in the payment system are exploiting the merchants and all consumers by integrating an avoidable layer of cost to the pure payment system that exists in plain vanilla UPI, as per study.
The thrust of prepaid wallet merchant discount rate (MDR) onto the merchants is so strong that it has become much easier for the merchants to succumb to the same and continue with their focuse business prospects by considering such costs as overheads means building the same into the selling price, as per study.
This inherently raises the purchase price for all consumers and thus hurts the consumers more as they ultimately bear the convolute cost of such payment system extravaganza, as per study.
Finance Minister Nirmala Sitharaman in her latest Budget speech said :
“The economy has become a lot more formalised as reflected in the EPFO membership more than doubling to 27 crore, and 7,400 crore digital payments of Rs 126 lakh crore through UPI in 2022”.
As per the report authored by Ashish Das, the government and RBI have bearing significant costs on printing and management of currency.
Over the past few years they have spent, it said on an average, Rs 5,400 crore annually on currency printing alone and even more on currency management.
The expenditure towards UPI may be much lower and could even curtail the expenditure on currency, it said, adding, a reduction in cash-cost burden must partly get channelized for furthering the UPI ecosystem.
Moving towards a solution, it said just like RBI in their books of account provisions for the cost of currency printing and management, it should also provision for bearing the costs associated with the management of the P2P and the offline P2M UPI infrastructure.
