Deepening UPI and ensuring parity in digital payment
The RBI will soon allow digital payments for feature phone users and without internet access. This is an intelligent move to further deepen UPI transactions, which is already the high king of digital payments. Since its launch in April 2016, UPI has emerged as the single-largest retail payments platform in terms of volume, led by small-ticket transactions of less than Rs 200. Extending UPI to feature phone users, who constitute a significant number, isn’t surprising given its rising dominance with 14 crore transactions per day, closing in on the $1 trillion mark in value.
Taking a logical step to increase digital penetration of financial services, RBI raised the cap for retail subscribers applying for G-secs and IPOs through UPI from Rs 2 lakh to Rs 5 lakh. Currently 50% of all retail IPO subscriptions happen through UPI. While the recent Retail Direct Scheme allowing customers to buy government bonds directly from the RBI is still in the natal ward, it is expected to pick up pace. However, analysts believe the increased cap may not be a gamechanger until SEBI norms capping retail subscriptions for IPOs at Rs 2 lakh currently are tweaked.
While the above measures are good, the underlying issue is charges on all digital transactions for which the central bank has proposed a discussion paper, which will be out next month. UPI falls under the government’s zero merchant discount rate policy, where merchants aren’t levied extra charges, and service providers earn no revenue. In contrast, credit card transactions incur a cost not for customers but merchants, who often refuse card payments to avoid the levies. Then there are prepaid payment instruments and wallet companies like Paytm who charge customers, and the costs are uneven. Clearly, we need parity to ensure that digital payment modes are reasonable and affordable but at the same time, remain ‘economically remunerative’ to service providers to avoid a revenue dent. But it’s also essential to
balance the interests of consumers, as charging UPI transactions will only disincentivise its usage.