The Reserve Bank of India (RBI) has issued a discussion paper on “Charges in Payment Systems” for public comment, as indicated in the Statement on Developmental and Regulatory Policies on December 08, 2021. On or before October 3, 2022, you can respond via email to any questions or comments posted there. This comes up as people question if India will have UPI payment charges!
The Reserve Bank of India (RBI) has prioritized efforts to smooth out payment systems by addressing any hiccups caused by systemic, procedural, or revenue-related concerns. Consumers typically have issues with excessive or opaque fees and are concerned about UPI payment charges and parties involved in processing their payments. Users should pay fair and competitive rates for payment services, while intermediaries should receive an appropriate revenue stream.
Payment systems [including Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) system, Real Time Gross Settlement (RTGS) system, and Unified Payments Interface (UPI)] and various payment instruments [including debit cards, credit cards, and Prepaid Payment Instruments (PPIs)] are all addressed in this discussion paper. Policies and intervention efforts would be shaped by the responses collected. This will address your query about UPI payment charges!
Statement on Developmental and Regulatory Policies sets out various developmental and regulatory policy measures relating to (i) regulation and supervision; (ii) financial markets; and (ii) payment and settlement systems.
I. Regulation and Supervision
1. Infusion of Capital in Overseas Branches and Subsidiaries of Banks and Retention/Repatriation/Transfer of Profits by these entities
The Reserve Bank of India (RBI) must currently approve the infusion of money into its overseas branches and subsidiaries and the retention and repatriation/transfer of profits from these locations. To provide operational freedom to banks, it has been agreed that banks fulfilling regulatory capital requirements may, with the consent of their Boards, invest capital in their foreign branches and subsidiaries; maintain profits in these centers; and repatriate/transfer profits from that place, without prior approval of RBI, subject to post facto reporting. Separate instructions are being provided in this regard.
2. Discussion Paper on Review of Prudential Norms for Investment Portfolio of Banks
Existing regulatory instructions on the classification and valuation of investment portfolios by scheduled commercial banks are mostly based on a framework published in October 2000, which drew on then-current worldwide standards and best practices. In light of the subsequent significant developments in global standards for the classification, measurement, and valuation of investments, the interrelationships with the capital adequacy framework, and the advancements in domestic financial markets, it is necessary to review and update these standards. As the first move in this manner, a Discussion Paper containing all pertinent issues will soon be posted on the RBI’s website for feedback.
II. Financial Markets
3. External Commercial Borrowing (ECB)/Trade Credit (TC) – Transition from LIBOR to Alternative Reference Rate (ARR)
The current benchmark rate for Foreign Currency (FCY) External Commercial Borrowings (ECB)/Trade Credit (TC) is the 6-month LIBOR rate or any other 6-month interbank interest rate applicable to the borrowing currency. In light of the impending demise of LIBOR, any generally recognized interbank rate or alternative reference rate (ARR) appropriate to the currency of borrowing may be utilized as a replacement. To account for differences in credit risk and term premia between LIBOR and the ARRs, it is suggested to adjust the all-in-cost ceiling for new foreign currency ECBs and TCs from 450 bps to 500 bps and from 250 bps to 300 bps, respectively, above the ARRs. To facilitate the transfer of existing ECBs and TCs linked to LIBOR, it is suggested to increase the all-in-cost ceiling from 450 basis points to 550 basis points and from 250 basis points to 350 basis points over the ARRs.
III. Payment and Settlement Systems
4. Discussion Paper on Charges in Payment Systems
Costs associated with digital payment services are often recovered from the merchant or the customer or borne by one or more parties. There are benefits and drawbacks to customers sharing these costs, but they should be acceptable and not disincentives to adopting digital payments. To fully understand the issues at hand, it is proposed to release a discussion paper covering all elements of the fees associated with the various digital payment channels, such as credit cards, debit cards, and prepaid payment instruments (cards and wallets), UPI, etc. The paper will also solicit feedback on concerns about convenience fees, surcharging, etc., as well as the measures necessary to make digital transactions affordable for users and economically rewarding for providers. The paper will be published in one month.
5. UPI for Feature Phone Users
Users of feature phones have restricted access to innovative payment products. Although feature phones have NUUP (National Unified USSD Platform) as an alternative for accessing basic financial services via the *99# short code, it has not been widely used. To increase financial penetration, it is essential to integrate feature phone users into the digital payments mainstream. During the initial cohort of the RBI Regulatory Sandbox, several innovators successfully showed their solutions for feature phone payments under the theme of “Retail Payments.” Together with other complementing solutions, these items will enable UPI-based digital payment solutions on feature phones, promoting a broader digitalization. It is intended to launch a payment product based on UPI for users of feature phones. Additional information will be provided shortly.
6. Simplification of Process Flow for Small Value Transactions over UPI
UPI is the largest retail payment system in terms of transaction volume in the United States (14 crore transactions per day, October 2021). One of the initial goals of UPI was to replace cash for transactions of little value. Analysis of transaction data reveals that fifty percent of UPI transactions were below 200, showing its success. However, these low-value transactions consume a large amount of system capacity and resources, often causing consumer annoyance owing to transaction failures caused by connectivity issues. It is therefore recommended to offer a simpler process flow by enabling small-value transactions via an “On-device” wallet in the UPI app, thereby conserving banks’ system resources without altering the user’s transaction experience.
7. Increase in UPI Transaction Limit for Specified Categories
Reserve Bank has made steps to allow wider participation of retail consumers in financial markets, e.g., investing in the G-secs segment through the recent launch of Retail Direct Scheme, where UPI, in addition to other payment methods like internet banking, can be utilized to make payments for participation in both the primary and secondary markets. UPI has become a popular payment method for Initial Public Offerings (IPOs) since its availability on January 1, 2019. Approximately 10% of subscription applications are reported for IPOs in the range of 2 to 5 lakh. In March 2020, the UPI transaction limit was increased from 1 lakh to 2 lakh. It is planned to increase the transaction limit for UPI payment charges for Retail Direct Scheme and IPO applications from 2 lakh to 5 lakh to further stimulate the use of UPI by retail investors. Shortly, NPCI will receive separate instructions.
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