Late last week, the Union Finance Ministry moved to reassure the general public that charges levied on UPI (United Payments Interface) transactions would be kept to a minimum. The clarification comes after a week of speculation following the Lok Sabha's passage of a law allowing transaction charges on UPI transactions that, until now, have been completely free for both the buyer and the seller. The clarification, however, leaves many questions unanswered. For one, it attempts to reassure that fees, if any, will not be imposed on the buyers. However, what this leaves out is that if fees of any kind are imposed upon the transaction, the sellers, in most cases, will transfer such fees to the consumer, thereby adding to the cost of the transaction.
UPI and QR code-based payment systems were released in the wake of demonetization and quickly became popular in the days when cash ran scarce and have grown over the years because the default for small transactions, where haggling for change earlier used to be a problem. Over time, the service became ubiquitous across markets, reducing the demand for cash to a point where banks began reducing the number of ATMs, as the need to withdraw cash was no longer felt like before. It was soon expanded, and credit card payments were also incorporated into the UPI system.
However, the cost of processing these digital transactions didn’t go away. Until now, that cost is being borne by the banks and the card-issuing companies like RuPay, with no transaction charge placed on either the merchant or the customer. This created two problems -- the first that the banks found the cost was increasing as the number of such transactions increased, and secondly, other card-issuing companies like Visa and Mastercard, who were levying transaction charges, found that they could not compete with UPI. For the moment, the government has sought to reassure that low-value transactions below a certain threshold will continue to remain free. While this will address the concerns of the consumers to some extent, levying any kind of a fee threatens the very simplicity and convenience that made UPI ‘universal’ in the first place.
By keeping transactions below a certain value completely free, the Government will not be solving any of the problems that it set out to solve by allowing for the imposition of MDR charges. On the contrary, by introducing a charge, it is adding a layer of inconvenience that will have to be borne both by the buyer as well as the seller. In effect, the present proposal is giving vibes of being the worst of both worlds -- neither will the banks have the benefit of a transaction charge, and neither will the consumer and seller have the peace of mind and will constantly have to worry about whether a given transaction is being charged or not.
No doubt the present amendment to the Bill is only an enabling provision, and charges, if any, will have to be decided by the NPCI when and if they do decide, but the fact that they are considering such charges raises questions about the assurances a government makes when introducing a new system for the public. It only serves to widen the trust deficit between the government and the citizens already reeling under unilateral decisions such as mandatory E20 fuel, the SIR exercise, the tax regime and the like.
