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Price Regulation of UPI

Context:

The recent discussion paper by the RBI on charges in payment systems has triggered widespread public debate, especially on the zero-charge framework for UPI transactions.

Relevance:

GS III- Indian Economy

Dimensions of the Article:

  1. What is Unified Payments Interface (UPI)?
  2. Why RBI wants to intervene?

What is Unified Payments Interface (UPI)?

  • Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • UPI, which was introduced in 2016, has become one of the most used digital payments platforms in the country.
  • The volume of UPI transactions has already reached ₹76 lakh crore in the current year, compared to ₹41 lakh crore in FY21,
  • Advantages of UPI Includes – Immediate money transfer through mobile device round the clock 24*7 and 365 days.
  • UPI Enables Single mobile application for accessing different bank accounts with Single Click 2 Factor Authentication – Aligned with the Regulatory guidelines yet provides for a very strong feature of seamless single click payment.
  • It also features Virtual address of the customer for Pull & Push providing for incremental security with the customer not required to enter the details such as Card no, Account number; IFSC etc.

Why RBI wants to intervene?

  • Goals of financial inclusion or viewing digital payments as a public good
  • Addressing market failures such as the presence of dominant firms or externalities that may arise due to the two-sided nature of this market.
  • For both objectives, regulators might want to cap or set to zero the MDR (paid by merchants to their payments service provider) or the interchange fee (paid by the acquiring bank to the issuing bank), or both.
Merchant Discount Rate
  • Merchant Discount Rate (alternatively referred to as the Transaction Discount Rate or TDR) is the sum total of all the charges and taxes that a digital payment entails.
  • Simply put, it is a charge to a merchant by a bank for accepting payment from their customers in credit and debit cards every time a card gets swiped in their stores.
  • Similarly, MDR also includes the processing charges that a payments aggregator has to pay to online or mobile wallets or indeed to banks for their service.

-Source: Indian Express


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December 2022
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