Reserve Bank Mulls Introducing Charges On UPI-Based Funds Transfer

The RBI has sought public views on 40 specific questions with regard to charges and levies in payment systems by October 3

The Reserve Bank of India’s (RBI’s) has sought feedback from stakeholders on charges in payment systems. The central bank is examining possibilities of recovering cost of its large investment and operational expenditure in payments systems, regulating interchange and mandating per transaction fee for debit card transactions, and introducing charges on Unified Payments Interface (UPI)-based fund transfer transactions.

The payment systems include Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) system, Real Time Gross Settlement (RTGS) system and Unified Payments Interface (UPI). Debit cards, credit cards, and Prepaid Payment Instruments (PPIs) are among the other payment instruments.

In the RBI’s “Discussion Paper on Charges in Payment Systems”, the regulator has sought public feedback and suggestions before October 3. “At this stage, it is reiterated that the RBI has neither taken any view nor has any specific opinion on the issues raised in this discussion paper,” the central bank said in its release.

The RBI has sought public views on 40 specific questions with regard to charges and levies in payment systems by October 3. The focus of RBI’s initiatives in the payment systems has been to ease frictions which may arise from systemic, procedural or revenue-related issues, the central bank said while releasing a discussion paper on 'Charges in Payment Systems'.

While there are many intermediaries in the payments transaction chain, consumer complaints are generally about high and non-transparent charges.

The regulator stressed that charges for payment services should be reasonable and competitively determined for the users, and also provide 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," it said.

Charges in a payment system are the costs imposed by the Payment Service Providers (PSPs) on the users (originators or beneficiaries), for facilitating a digital transaction. The charges are recovered from the originators or the beneficiaries depending on the type of payment system.

In a funds transfer payment system, the charges are generally recovered from the originator of the payment instruction. These are usually levied as an add-on to the amount earmarked for remittance.

In the case of a merchant payment system, the charges are generally recovered from the final recipient of money (merchant). This is generally done by deducting the same from the amount receivable by the merchant or a discount to the amount receivable by the merchant.

Entities involved in providing digital payment services incur costs, which are generally recovered from the merchant or the customer or is borne by one or more of the participants.

While there are both advantages and disadvantages of customers bearing these charges, they should be reasonable and should not become a deterrent in the adoption of digital payments, the RBI had said earlier.