Homefinance news

RBI seeks feedback on payments charges for UPI, Cards, PPI

RBI seeks feedback on payments charges for UPI, Cards, PPI

6 Min(s) Read

By Ritu Singh   IST (Published)

Mini

The discussion paper on “Charges in Payment Systems” was placed in public domain, with about 40 questions raised on different aspects on such charges. The Reserve Bank of India has invited comments and feedback by October 3, 2022, which will be used to guide policies and intervention strategies.

The Reserve Bank of India has sought public feedback on a host of charges levied in payments systems, suggesting some rationalisation of charges may be in the offing.
The discussion paper on “Charges in Payment Systems” was placed in public domain, with about 40 questions raised on different aspects on such charges. The Reserve Bank of India (RBI), however, did not offer its own views on the matter. It has instead invited comments and feedback by October 3, 2022, which will be used to guide policies and intervention strategies.
Broadly, the RBI has sought feedback on whether digital payments charges should be regulator-prescribed or market determined, whether charges should be a proportion of transaction value or a fixed amount, and how they can be made more transparent.
Debit Cards
A debit card is the only merchant payment instrument where the RBI has intervened to bring down the cost to merchants. The present Merchant Discount Rate (MDR) regime for debit cards has been in force for more than four years. One of the options the RBI is considering is to increase the merchant threshold turnover from Rs 20 lakh to Rs 40 lakh, in sync with extant GST turnover requirements, for ‘small merchants’, and reduce maximum the MDR for ‘other merchants’. Alternatively, the two merchant categories can be merged and a uniform maximum MDR can be prescribed for all types of merchants, the paper said.
The paper said that cost to small merchants for accepting debit card transactions has come down substantially. However, the RBI continues to receive complaints from merchants on their cost of accepting digital transactions. Many of these complaints arise due to the role played by intermediaries in the acquiring process.
Questions for Feedback
i. Should debit card transactions be charged as normal funds transfer transactions?
ii. Should MDR for debit cards be uniform across merchants (irrespective of turnover)?
iii. Should RBI regulate interchange for debit card transactions?
iv. Should RBI deregulate MDR for debit card transactions and let stakeholders decide on optimum level of MDR and interchange?
v. Should MDR for debit cards be a percentage of the transaction value or should it be a fixed amount irrespective of the transaction value?
vi. Should RuPay cards be treated differently from other debit cards affiliated to international card networks in terms of MDR?
vii. Among the two options (waiving / reducing MDR, or giving incentive to cardholders), which is more effective for increasing use of digital payments?
Credit Cards
The RBI has not issued any regulatory mandate or intervened on MDR for credit card transactions. The main reason for this is the credit-linked nature of the product. Credit cards have a higher MDR compared to debit cards.
The paper observed that India is heavily a debit card market as seen from the number of such cards issued — ~92 crore vis-à-vis ~7.5 crore credit cards, as at the end of May 2022. In terms of usage, the debit and credit card turnover has been almost the same. This trend is specific to India and is in line with the mindset of our citizens in terms of lower dependency on credit for regular requirements. Further, the fact that Indians prefer to pay their credit card dues ahead of time often, rather than waiting for the due date, does not get reflected in lower MDR or in their CIBIL score. Nevertheless, in case of any delay in due payment, charges like late fee, interest on dues, etc., are levied on the credit cardholder.
Questions for Feedback
i. Are credit card MDR charges reasonable?
ii. Should RBI regulate MDR for credit cards?
iii. Instead of MDR, should RBI regulate interchange for credit card transactions?
iv. Should RBI regulate both MDR and interchange for credit cards?
Prepaid Payment Instruments
The RBI has not issued any instructions regarding charges for PPI-based merchant payments or funds transfer transactions.
Questions for Feedback
i. Should RBI regulate MDR for PPI transactions?
ii. Given that no credit is extended in case of PPIs, is it reasonable to charge high MDR (in sync with MDR levied on credit card transactions) for PPI transactions?
iii. Should the charges structure for merchant payments done using PPIs be akin to that of debit cards?
iv. Should charges for cash withdrawal using PPIs be regulated?
UPI
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 discussion paper seeks to elicit general feedback on this as well.
Questions for Feedback
i. In the context of zero charges, is subsidising costs a more effective alternative?
ii. If UPI transactions are charged, should MDR for them be a percentage of transaction value or should a fixed amount irrespective of the transaction value be levied?
iii. If charges are introduced, should they be administered (say, by RBI) or be market determined?
Funds Transfers Via IMPS, RTGS, NEFT
Many payment instruments/modes, like NEFT, RTGS and IMPS, operate on the flat fee structure as they do not involve fund transfer cost (borne by RBI).
Questions for Feedback
i. Should RBI review the policy of not levying charges on members for RTGS transactions?
ii. Should the time-variable charges be re-introduced?
iii. For NEFT, RTGS transactions, should RBI prescribe the charges that can be levied on customers by members, or should they be market driven?
iv. Should RBI charge member banks for transactions processed through NEFT?
v. Should banks be permitted to charge customers for NEFT transactions, whether initiated online or otherwise?
vi. Should charges for IMPS transactions be regulated by RBI?
vii. Should RBI fix a ceiling on charges that can be imposed in IMPS?
Intermediaries, Convenience Fee, Surcharges
i. Should intermediaries be transparent in the way charges are levied by them?
ii. Should the various charges levied by intermediaries be unbundled and charged separately?
iii. Should these charges be subjected to regulation?
iv. Are surcharges justified? Are they desirable?
v. Should merchants be allowed to levy surcharge on customers?
vi. Should convenience fee, surcharging be regulated? By whom?
vii. Should such charges be the same irrespective of the number of seats / tickets booked?
viii. Should such charges be based on value of a transaction?
While there’s no real giveaway in terms of which way the RBI may move, its Payments Vision 2025 document highlights affordability for customers. The government is also desirous of greater digital adoption by the public.
Therefore, it may be unlikely that charges go up significantly for customers, and if they do, they may be borne by banks, fintechs etc. However, the impact of any rationalisation of MDR, other fees and charges could be significant for industry players, including banks, payment aggregators, fintechs, card companies.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!