Fintech Security

Will merchants absorb cost of UPI transactions? Fintech industry faces dilemma- The New Indian Express

By Express News Service

BENGALURU:  Even as the government clarified that there would be no charges on UPI transactions, the fintech and banking industry is in a dilemma if the cost incurred can be absorbed by merchants. 

Muralidharan Srinivasan, Head of Payments, APMEA Region, FIS, a fintech company, feels that as UPI (Unified Payments Interface) brings immense benefits including cost savings for trade, a nominal cost can be absorbed by merchants, 

Currently, there is no cost impact for UPI transactions for the consumers, and Srinivasan said that a nominal cost absorbed by merchants can to some extent offset the huge service cost that the UPI stakeholders incur.

“Else there can be a challenge to further sustain the scale and evolution of UPI in the long term,” he said.

On Sunday, the Ministry of Finance clarified that there is no consideration to levy any charges on UPI transactions.

This clarification comes a few days after the RBI launched its discussion paper on charges in payment systems such as NEFT, IMPS and RTGS, among others. UPI is both a funds transfer as well as a merchant payment system.

The government has mandated a zero-charge framework for UPI transactions with effect from January 1, 2020.

This means that charges in UPI are nil for users and merchants alike.

The RBI has sought feedback saying that if UPI transactions are charged, should MDR (merchant discount rate) for them be a percentage of transaction value or should a fixed amount irrespective of the transaction value be levied?

Since reports circulated that the government might levy charges on UPI transactions, the ministry of finance soon clarified that it would not charge for UPI services.

The government is treating it like public goods to be paid for by the private sector.  They feel that the private sector, in general, is benefiting from the digital push.  

So, they should absorb these costs, said a top official from a fintech association.

Meanwhile, Payments Council of India Chairman Vishwas Patel said that all the support money provided by the finance ministry has been appropriated by the banks only.

In his reply to the Ministry of Finance tweet, he said, “No single bank has even a significant single-digit volume in UPI. None of the payment aggregators or facility providers received anything.”

In its discussion paper, the central bank said, “Along with safety and security, the reasonableness of charges is an important criterion for wider acceptance of digital payment modes.”

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