The government and the Reserve Bank of India need to share the cost with banks associated with maintaining UPI infrastructure as it reduces the demand for cash and helps in curtailing expenditure on printing and managing currency notes, according to a report prepared by IIT-Bombay.
Observing that about Rs 5,000 crore is spent annually on printing cash alone and even more on managing it, the report said, "The expenditure towards maintaining Unified Payment Interface (UPI) may be much lower and could even curtail the expenditure on cash."
The report further said UPI as a digital payments platform increases efficiency towards tax compliance, and provides overall convenience for public good.
"With the government's vision of no direct or indirect charge on payments using UPI, an appropriate sharing of cost burden by the government and the RBI is called for (with UPI being the simplest alternative to cash in this era of mobile phones)," the report added.
Currently, banks are bearing the cost of UPI transactions.
BHIM-UPI is powered by the National Payments Corporation of India (NPCI) that engineered to make it a giant payment infrastructure of the country.
NPCI has not put any business restrictions onto the banks for P2P (peer-to-peer) payments using BHIM-UPI other than years of moral suasion to keep the charges zero, it said.
In this context, it may be noted that in the approved minutes of a meeting of banks with NPCI dated February 14, 2020, the UPI Steering Committee of NPCI concurred to limit free P2P fund transfer transactions to 20 per month, it said.
"However, we observe that NPCI does not explicitly indicate in the said minutes that the banks charge beyond 20 P2P transactions in a month. Therefore, the decision to charge for UPI transactions is that of banks and not of NPCI," it said.
While UPI is still in its infancy towards replacing cash, given its rapid progress and future potential, it deserves full support from the RBI, it said.
The report also added that just like RBI provisions for the cost of cash in their books of account, it should also provision for bearing the cost associated with managing the UPI infrastructure.
It further said while banks have to contribute their bit for the payment system, it does not mean that the government and the RBI do not have to share the cost burden in endeavour towards furthering the digital payment system of the country.
"With the new law prohibiting banks and system providers to charge users of the prescribed electronic modes of payment, we find a persistent debate on MDR (merchant discount rate), a fee that merchants pay for accepting payments through digital means," it said.
Though it is a fact that card-based merchant payments has worked well internationally on the principle of MDR, there is a need to be a bit careful to apply the same principle for the asset-lite UPI, which has the potential to substitute our day-to-day cash requirements, it said.
For the present, without advocating anything on the MDR front for UPI, it may at most have a relook at the MDR issue surrounding debit cards.