India Paves the Way For Charging Merchants a Fee On UPI Transactions (bbc.com) 21
An anonymous reader quotes a report from the BBC: For most Indians, paying by Unified Payments Interface (UPI) has become almost absurdly routine. Scan a QR code, tap a few buttons and the money moves instantly. There is no card machine, no cash, and -- most importantly -- for the user, no visible fee. That may be about to change. India has paved the way for banks and payment companies to charge merchants a fee on UPI transactions, potentially ending a decade-long experiment in free digital payments.
The government has yet to decide the rate or exactly where it will apply, but proposals under discussion include a merchant discount rate (MDR) of 0.3-0.5% -- a small fee paid by a business to the banks and payment companies that process its UPI payments -- on larger transactions at big businesses. The government says consumers and person-to-person UPI payments will remain free. If merchant fees are introduced, they will apply only to some transactions above a set threshold, at a nominal rate, meaning most UPI payments will remain free. The question is whether putting a price on UPI could weaken the network that made it such a success.
The stakes are enormous. Launched in 2016, UPI has grown into one of the world's biggest real-time payment networks. According to official data, in July alone, there were 23.6 billion UPI transactions worth 29.87 trillion rupees ($313.5 billion). Fintech apps such as PhonePe and Google Pay account for most UPI payments. In the financial year just ended, the figure was about 241.6 billion transactions -- almost 12,000 times the volume in UPI's first full year. More than 550 million people now use it, and the system is now available in some form for payments in 11 countries outside India. India's UPI became ubiquitous partly because it made digital payments almost frictionless for merchants, including small vendors who can accept payments with little more than a QR code. New research suggests that merchant acceptance was "not just a result of UPI growth, but one of its key drivers."
As RBI governor Sanjay Malhotra put it, "Someone will have to pay the cost." The challenge will be making UPI sustainable without weakening the merchant network that helped it take off.
The government has yet to decide the rate or exactly where it will apply, but proposals under discussion include a merchant discount rate (MDR) of 0.3-0.5% -- a small fee paid by a business to the banks and payment companies that process its UPI payments -- on larger transactions at big businesses. The government says consumers and person-to-person UPI payments will remain free. If merchant fees are introduced, they will apply only to some transactions above a set threshold, at a nominal rate, meaning most UPI payments will remain free. The question is whether putting a price on UPI could weaken the network that made it such a success.
The stakes are enormous. Launched in 2016, UPI has grown into one of the world's biggest real-time payment networks. According to official data, in July alone, there were 23.6 billion UPI transactions worth 29.87 trillion rupees ($313.5 billion). Fintech apps such as PhonePe and Google Pay account for most UPI payments. In the financial year just ended, the figure was about 241.6 billion transactions -- almost 12,000 times the volume in UPI's first full year. More than 550 million people now use it, and the system is now available in some form for payments in 11 countries outside India. India's UPI became ubiquitous partly because it made digital payments almost frictionless for merchants, including small vendors who can accept payments with little more than a QR code. New research suggests that merchant acceptance was "not just a result of UPI growth, but one of its key drivers."
As RBI governor Sanjay Malhotra put it, "Someone will have to pay the cost." The challenge will be making UPI sustainable without weakening the merchant network that helped it take off.
Typical. (Score:3, Insightful)
Re:Typical. (Score:4, Insightful)
I think the problem is that the first step is actually "Make an expensive system that's free to use, that we don't know how to sustainably pay for."
Re:Typical. (Score:5, Insightful)
It's fairly simple. If it's that important as service, use government tax revenue to fund its function. If a hot economy is what they want and this helps the money flow, let the rich who can afford the taxes and benefit the most off of that hot economy pay for the privilege.
Re: (Score:2)
It's fairly simple. If it's that important as service, use government tax revenue to fund its function.
They already have. UPI was developed and is operated by a wholly government owned entity. It's just the government is now getting greedy.
Re:Typical. (Score:4, Interesting)
It is very clear how to sustainably pay for - India isn't going bankrupt wiping fees off UPI.
The problem is that free UPI is infinitely better than Visa and Mastercard and Trump doesn't like it, so he creates problems for the biggest industrialists that fund the current Indian government i.e. Adani, so Modi has to find a way to make Adani happy again.
Something that doesn't find any mention in the reliable western media.
Re: (Score:2)
It is very clear how to sustainably pay for - India isn't going bankrupt wiping fees off UPI.
The problem is that free UPI is infinitely better than Visa and Mastercard and Trump doesn't like it, so he creates problems for the biggest industrialists that fund the current Indian government i.e. Adani, so Modi has to find a way to make Adani happy again.
Something that doesn't find any mention in the reliable western media.
And this is the real reason so many vested interests are trying to kill cash worldwide... because the banks don't get a cut of every transaction made with cash. It's not about eliminating privacy (that might be a slight benefit for some), the real reason is far more insideous... it's that the rich aren't able to profit from it.
Re: Typical. (Score:4, Interesting)
I think the problem is that the first step is actually "Make an expensive system that's free to use, that we don't know how to sustainably pay for."
I don't buy it. They've made it to massive scale without anyone going bankrupt; clearly no one is paying 0.3% of every transaction ($100 billion/year) to keep the current system afloat. The internet itself is evidence that you can have billions of secure, complex transactions where each party just pays a minimal amount for access to the network and no third party needs to be paid for every transaction (roughly $0.06 for a couple hundred bytes in this case).
This is just banks trying to muscle in on some nice-looking transactions.
The first hit is free... (Score:2)
... and now that you're addicted to the convenience, here comes the rent seeking.
And That Is The End Of That (Score:1)
I had been singing the praises of UPI and holding it up as a model for other countries to copy. It is an excellent system that was proving to work really well. But, it was free and frictionless.
Now they are going to start charging for the service and eliminate one of the key factors that made it a viable option against credit cards. This is a stupid decision on India's part. I'm really curious to see how the merchants take it. Also, what about person to person transactions?
Re: (Score:3)
Also, what about person to person transactions?
From TFS: "The government says consumers and person-to-person UPI payments will remain free".
That said, I would be surprised if those payments were to remain free for more than a few years.
Really late in the process of rollout (Score:3)
They should have addressed the eventual charge for executing the payment up front and earlier by making it clear it was all an initial experiment. No one of any intelligence imagined that there is not a small cost to the banks to execute the transaction itself, although it is likely a very small amount per transaction (probably only a few rupees) for values under the various reporting thresholds (where the costs of the transaction goes up due to the additional overheads at the bank).
Charging now, for something that was free so long, is going to be hard.
Re:Really late in the process of rollout (Score:5, Insightful)
If we compare the cost of paper money - the printing, distribution, lockers, security .... Who bears that cost? Why can't the same approach be applied to digital circulation? As others have pointed out, this feels like appeasing the US in trade negotiations rather than burden of running the infra.
tax the rich (Score:3)
As they benefit from the improved economy. Call the payment network public infrastructure
Re: (Score:2)
This fee is flat and so similar to a regressive tax.
Re: (Score:2)
Re: (Score:2)
VAT is a regressive tax too. Utter dogshit policy to be expected of the center-right ordoliberal governments that dominate EU economic politics.
US pressure is drivin this more than anything else (Score:5, Interesting)
Re: (Score:2)
Charging a percentage makes no sense. (Score:3)
The cost of the bits flung around to facilitate the transaction don't get more expensive with higher cost transactions. Allowing it to be a percentage allows the banks, etc. to keep complaining about nebulous "costs" and working to increase that more or less free revenue they'll get from it, because that's what it's really about.
Trump has been pushing for this for about a year.. (Score:1)