17 September , 2022 |


Shall the UPI remain free? 💸

Recently, the RBI (Reserve bank of India) has asked for a public opinion on whether to start charging a nominal fee on the transactions made through UPI. And many of us freaked out, and most of us were like, NO. In this article, I will make you understand the real issue with UPI and how we can fix it for a seamless experience. Check it out :) Well, almost every Indian must be familiar with the term UPI. If you probably haven't heard the term already, you might still be using it on a daily basis. And believe me, using cash to facilitate transactions has already become obsolete. The introduction of UPI has led to an increase in digital transactions leading to the largest digitised economy. Let's get deeper into the story then :) Intro UPI stands for "Unified Payments Interface", developed by the "National Payments Corporation of India" or simply NPCL. NPCL comes under the government of India and is a non-profit organization. UPI helps facilitate peer-to-peer transactions (Retail users or Merchant) digitally and seamlessly without the intervention of physical cash. How does UPI function? Every UPI user will be assigned a unique VPA (Virtual Payment Address), which simply looks like an e-mail address. You know what I am already talking about, right :) If not, let me explain with an example; my UPI id goes like krishnateja@okicici (Chill, it's fake) And to break it down further, there are 5 parties involved in the process. They are

  1. Payer App (Payment Service Provider) - Google Pay, Paytm, PhonePe
  2. Issuing Bank (Sender's Bank) - ICICI Bank, HDFC Bank, etc
  3. NPCI
  4. Beneficiary Bank (Receiver's Bank) - ICICI Bank, HDFC Bank etc
  5. Payee PSP - Google Pay, Paytm, PhonePe So this is what the process looks like starting from the Payer App and ending with the Payee receiving the amount from the Payer; you also need to understand the NPCI plays a crucial role in connecting the bank servers with the PSPs. Remember that during this process, there is a nominal charge involved of 1 Rupee for every 1000 Rupees transaction for the sender, which is called the Merchant Discounted Rate (MDR). And this does not end here; a total of 2.5 rupees is charged for the entire process. Though the charge might seem too less for you, remember that around 10 lakh crore rupees of transactions have been made through UPI in just the previous month. Imagine how much it would cost in total, it's 2500 crores!! Fortunately, the government has relieved the MDR for many good reasons. The growth of UPI has been significantly increasing over time, and it is of no surprise it is going to increase in the future as well. So the primary reason is to increase the UPI penetration. Benefits of UPI There are a lot of benefits of UPI, to be honest with you. Let's discuss this in short so that we can have a clear understanding of the same. The apparent benefit is to smoothly and seamlessly facilitate transactions as you need not worry about the change and damaged notes. In fact, UPI helps in getting rid of tax evaders and black money. Moreover, there are fewer chances of money getting stolen via UPI as you must set up a PIN before attempting to facilitate each and every transaction. The best advantage is that the entity solely belongs to the government, so we can blindly trust them. Drawbacks of UPI
  6. Do you often get worried when the payments get delayed or declined due to issues with the server while facilitating a critical transaction? Well, there is a fundamental reason for the same. Let's get to the point; not many people know that banks are not willing to enhance the UPI infrastructure as it isn't a profitable venture. Moreover, the government is providing enough funds to develop the same. The entire issue can be fixed if the banks invest in infra if they get adequately funded by the government or charge a nominal fee. So we ultimately found a solution for this, right? Not really, as I present the other crucial drawback.
  7. We know that UPI does not work without the intervention of PSP or Payment Service Providers like Paytm, PhonePe, and Google Pay. In recent times, we only hear about these three PSPs as the others, like free charge, MobiKwik, etc., have already been taken down as this venture is not profitable. Paytm is already under crisis, the Tech giant Google backs Google Pay, and Flipkart owns PhonePe. Conversely, these entities burn a lot of cash to acquire customers by rewarding their users with coupons and cashback. Due to this reason, you might have already noticed that Paytm has begun charging its users convenience fees, platform fees, and internet handling charges for some transactions, which does not seem acceptable to its users. To generate profit, they've got to do this. Conclusion So this is how I will end this article by stating the pros and cons of UPI. I know we were initially freaked out when RBI asked for people's opinions on whether to start charging for UPI txn, but I hope you at least understood what I was trying to say. What do you think? Do we need to pay the fee for every transaction we initiate? Let us know what you think. You can share your feedback with us at eic@ignitingminds.in or simply comment on our website if you are reading it. Article by Krishna Teja Reddy and Picture Sourced from Razorpay Hold on, If you loved reading this blog, then simply share this blog with a couple of your friends and loved ones who you think need to understand this. It might help. Until then, this is Krishna signing off :)

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