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RBI paper mulls whether UPI should continue with a zero-charge framework

UPI in particular saw high adoption due to speed and zero charges, but a new RBI discussion paper asks if digital payments should be charged

RBI’s discussion paper seeks feedback on whether charges should be imposed on UPI and RuPay debit card transactions. As of now, both the payment options attract zero charges under a government mandated framework, which came into effect from January 1, 2020. Because of this, UPI has become a much more competitive option for merchants when compared to other options like credit and debit cards, which levy a charge on each transaction.  The paper also highlights various options and seeks feedback on how charges on other payment instruments like RTGS, NEFT, credit and debit cards, and more should be regulated.  Why it matters: Favourable policy conditions for UPI and RuPay have made them a popular choice all over the country. But how long can the zero-charges formula sustain? Who will pay the cost of the financial infrastructure being used for free? RBI asks these questions and outlines various options for imposing charges on UPI, debit and credit cards, RTGS, and other payment options. It also seeks feedback from stakeholders and the public about the same. What are the different charges in the payment system?  Merchant Discount Rate (MDR) – It is the rate charged to a merchant by the bank for using various financial services. For example, if you swipe a debit card for Rs 10,000 on a merchant’s card machine, the merchant will have to forgo a small portion of it. It will be used to pay the bank, Payment Service Providers(PSPs) and intermediaries for providing their services. Interchange: This…

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