Free UPI Has Delivered Benefits, But Costs Must Be Covered: RBI Governor
Amidst talks of instant merchant UPI payments, RBI Governor Sanjay Malhotra stated that for the payment system to be sustainable, its operational costs must be borne by either the government or the users.
At the Financial Express BFSI Summit, Malhotra noted free UPI's success, boosting transaction numbers. But, services need cost coverage for sustainability. June saw 18.4 billion UPI transactions, up 32% year-on-year.
Speculation is rife about a possible transaction fee, called the Merchant Discount Rate (MDR), when paying via UPI. Usually 1-3%, MDR is levied on merchants by banks for debit/credit card payments. To promote digital payments, there's no MDR for RuPay debit cards and UPI since January 2020.
While 80% of the incentive under this scheme is provided without any conditions, 10% depends on the merchant's bank's technical decline being less than 0.75%, and the remaining 10% is payable when the bank's system uptime is over 99.5%. In recent years, technical glitches in UPI transactions have been on the rise.
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Incentive scheme
The government's outlay under the incentive scheme for UPI transactions rose from Rs 957 crore in 2021-22 to Rs 3,268 crore in 2023-24. The revised estimate for total payment under the scheme in 2024-25 was Rs 2,000 crore, while Rs 437 crore has been budgeted for 2025-26.
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MDR and Government Subsidies for Payments
The government has dismissed suggestions that MDR will be levied on UPI transactions. In June, the finance ministry said such talk was "completely baseless, unfounded and misleading." Malhotra said the RBI is committed to providing an efficient, safe, and accessible payment system.
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