The Union Finance Ministry has said that there is no proposal to levy charges on Unified Payments Interface (UPI) transactions. The clarification from the ministry came after media reports had emerged claiming that Reserve Bank of India (RBI) has floated a proposal to impose transaction costs on UPI services to recover the cost incurred on maintaining the UPI system.
“UPI is a digital public good with immense convenience for the public & productivity gains for the economy. There is no consideration in Govt to levy any charges for UPI services,” the finance ministry announced on Twitter.
UPI is a digital public good with immense convenience for the public & productivity gains for the economy. There is no consideration in Govt to levy any charges for UPI services. The concerns of the service providers for cost recovery have to be met through other means. (1/2)
— Ministry of Finance (@FinMinIndia) August 21, 2022
The ministry also added that the concerns of the service providers on recovering the cost of running the UPI system will have to be met through other means. The ministry added that the govt had provided such financial support to the digital payment ecosystem last year and similar measures have been announced this year also, to encourage further adoption of Digital Payments and promotion of payment platforms that are economical and user-friendly.
The finance ministry’s clarification came after media reports claimed that the RBI had made the proposal to impose a cost on UPI usage in a paper “Discussion Paper on Charges in Payment System,” where the central bank had reportedly suggested introducing usage charges for UPI transactions. The objective of the RBI paper was to assess the possibility of recovering the cost of building and running the UPI infrastructure.
The paper reportedly said that as UPI fund transfers are same as fund transfers made through IMPS (Immediate Payment Service), the UPI should also attract same service charge as IMPS. It is notable that UPI uses the same IMPS system for instant fund transfer from one bank account to another, and both systems are run by National Payments Corporation of India (NPCI).
Through the paper, RBI had sought feedback from stakeholders on the possibility of imposing a charge on UPI, and whether it should be a flat charge or a ‘tiered’ charge based on transaction value. However, RBI had clarified that it has not taken any decision on the matter, and had merely initiated a discussion on it.
The discussion paper dealt with the overall payment networks in India, with an objective to structure and streamline the framework of charges for different payment services like National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), IMPS, UPI and other payment instruments like debit cards, credit cards and prepaid payment instruments.
RBI had said that while there are many intermediaries in the payments transaction chain, consumers generally complain about high and non-transparent charges. The discussion paper had said, “Charges for payment services should be reasonable and competitively determined for users while also providing an optimal revenue stream for the intermediaries. To ensure this balance, it was considered useful to carry out a comprehensive review of the various charges levied in the payment systems by highlighting different dimensions and seeking stakeholder feedback.”
Therefore, the RBI discussion paper didn’t said that the central bank is imposing service charges on UPI transactions, it was only a topic of discussion for overall payment networks in India and their associated charges. However, several media reports published misleading reports claiming that RBI is considering imposing the charge.
This divided social media users into two groups, some people supported the move saying that nothing should be free and the banks and service providers need to recover the cost of running the system, the majority of people opposed it. They said that UPI has acted as a primary force in making India a front-runner in the digital economy. They also argued that any service charge that is bound to discourage people from using UPI and motivate them to use cash instead goes against the objective of the Modi govt to make the Indian economy cashless.
However, for now, the finance ministry had put all such speculations to rest as it has clarified that there is no proposal to impose charges on UPI transactions.
