A study conducted by IIT Bombay has proposed that a uniform digital payment facilitation fee of 0.3% could be implemented by the government to finance the necessary infrastructure for these transactions and to guarantee the financial sustainability of the UPI payment system.
The facilitation fee of 0.3 per cent can generate around Rs 5,000 crore in 2023-24, said the study titled Charges for PPI-based UPI payments — The Deception.
The 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, argued that the payments received by merchants should remain unpolluted whether they are from UPI directly or through prepaid e-wallets.
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The NPCI, with effect from April 1, 2023 introduced an interchange fee of 1.1 per cent 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 received by merchants unpolluted and unburdened 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 consequence, the business cost of merchant will go up.
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Against this backdrop, the study made a case for introducing 0.3 per cent facilitation fee on digital payments which could generate as much as Rs 5,000 crore in fiscal 2023-24.
However, 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.
On more than one occasion, the banks and system providers had tried to interpret the UPI-Law in a way that suited 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, it said.
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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 focused business prospects by considering such costs as overheads (thus building the same into the selling price), it said.
This inherently raises the purchase price for all consumers and thus hurts the consumers more as they ultimately bear the convoluted cost of such payment system extravaganza, it added.
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 been bearing significant costs on printing and management of currency.
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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.