Dear readers,

This is a crucial time for all of us to be part of the future of payment systems in India. The central bank of India released a Discussion Paper on Charges in Payment Systems and is expecting public feedback.

As of today, several payment types in India are free, discounted or have a ceiling in order to protect customers from exorbitant fees.

Now RBI says,

In any economic activity, including payment systems, there does not seem to be any justification for a free service, unless there is an element of public good and dedication of the infrastructure for the welfare of the nation. But who should bear the cost of setting up and operating such an infrastructure, is a moot point. A few such issues are presented in this discussion paper.

Hence RBI is asking for public feedback on these charges, and what they should be. Many media channels have focused on the possibility of charges on UPI, but there are 40 questions that seek feedback from the public and this is the time to make your vote count.

Whatever the results of the poll will be, if more than 200 people vote, we will collectively send it to the RBI. I have listed the services and RBI’s questions in the letter and divided them into two parts. Make sure you vote on them on both parts.

Please read this post in the substack app or the browser to be able to vote in the polls below. Click here to open it in the browser, or below to get the iOS app.

Available for iOS and Android

Real Time Gross Settlement (RTGS) System

RBI is the owner, operator as well as regulator of RTGS.
The RTGS System Regulations impose a monthly membership fee on direct members. RBI discontinued levying processing charges and time-varying charges, on members from July 1, 2019.
Many banks do not charge for RTGS, but they are allowed to charge between 25-50 INR depending on the amount only from the sender.
RBI sees a Time-varying charge as viable to maintain the infrastructure.
Questions for RTGS:

National Electronic Funds Transfer (NEFT) System

RBI is the owner, operator as well as the regulator of NEFT.
NEFT is a system operated round the clock on all days, i.e., on a 24x7x365 basis. RBI does not levy any processing charges on member banks and asked banks to not levy any charges on savings account holders if done online.
Banks incur costs for maintaining the network, and RBI has made a significant investment into the infrastructure so the proposal is to levy charges in order to recover the costs for banks and RBI.

Questions for NEFT:

Immediate Payment Service (IMPS)

IMPS is a funds transfer system operated by NPCI, allowing anyone to transfer up to 500k INR anytime.
NPCI imposes transaction fees on the participant banks to recover its cost of operations, banks may charge customers sending funds.

Questions on IMPS:

Debit Cards

RBI regulates the fees charged to merchants on digital payments using debit cards. Merchant discount rate or MDR is defined as the rate charged to a merchant for processing payment services.
There are different categories of merchants and hence different MDRs are set depending on their turnover. However, merchants continue to complain of heavy charges partially due to the middleman - Payment service providers.
RBI seeks opinion on whether it should regulate interchange for debit card transactions, deregulate MDR, or other options.
Additionally, views are sought on whether MDR for debit cards should be a percentage of the transaction or if there is a need for a fixed amount irrespective of the transaction value.
Finally, RBI seeks opinions on RuPay cards to be treated differently than the rest. RuPay is an Indian card issuer company competing with the likes of Visa, Mastercard, Amex, etc.

Current Merchant Discount Rate (MDR) on Debit cards: Source: RBI

Questions regarding Debit Cards:

Credit Cards

The MDR is significantly higher for credit cards. It is around 2%.
There are only 7.2 crore (72 Million) credit cards issued in India against 92 crore (920 Million) debit cards.
RBI is seeking feedback on MDR, charging the customer, and the interchange fee.

Questions regarding Credit Cards:

Prepaid Payment Instruments (PPIs)

PPIs are wallets and prepaid card services - similar to debit cards.
The cost to run PPIs is different for banks and non-banks.
In the case of PPIs, there is a cost involved in loading the funds, especially when PPI is loaded online using debit cards, credit cards, UPI, etc. Cost is borne by the provider or customer.
RBI has not issued any instructions regarding charges for PPI-based merchant payments or funds transfer transactions.

Questions regarding PPIs:

Unified Payments Interface (UPI)

UPI is both a funds transfer as well as a merchant payment system.
RBI has not issued instructions regarding charges for UPI transactions. The Government has mandated a zero-charge framework for UPI transactions with effect from January 1, 2020.
UPI as a fund transfer system and merchant payment system enables facilitates real-time settlement.
It costs around 2 INR for an average transaction amount of 800 INR transaction to the infrastructure provider.

A recent update from the Ministry of Finance confirmed that UPI will be free and the cost of operations needs to be recovered by other means.

Ministry of Finance @FinMinIndia

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)

Questions regarding UPI:

There isn’t much space to add the remaining questions here in the same article. Hence please move on to Part 2 of the voting by clicking here.

Click for Part 2

The Coin Crunch

The complete RBI Questionnaire for Charges on…