Should private banks levy charges for more than 20 P2P UPI payments a month?
Large private banks have introduced charges for person-to-person payments using the Unified Payments Interface (UPI) beyond 20 times a month to prevent frivolous transactions from putting a load on the system. Reportedly, the decision to limit free transactions to 20 was taken at a meeting of banks with NPCI on February 14, 2020, where the UPI Steering Committee of NPCI agreed to limit free P2P fund transfer transactions to 20 per month.
Transactions that amount to Rs 1,000 or below will be charged Rs 2.50, and transactions higher than Rs 1,000 will be charged Rs 5. This fee does not include GST, which means, an additional 18 per cent GST charges will be levied as well. Kotak Mahindra and Axis Bank had sent out advisories to its customers in March about the new charges. Kotak Mahindra has, however, increased the cap on the number of transactions to 30 peer-to-peer transactions per month.
The private lenders have, however, clarified that while the merchant payments, online shopping , bill payments etc will continue to remain free and only the person to person (P2P) fund transfers would be chargeable irrespective of the bank accounts and wallets (PhonePe, Paytm, Google Pay) the customers use.
However, a recent report published by Ashish Das of the Indian Institute of Technology (IIT), Bombay, is slowly kicking up a debate about the private bankers's decision to levy charges on UPI transactions, when the government has said that payments using UPI would be free.
Banks are interpreting the law to suit them to conclude that, while 'payments' are free, transfers can be charged, a TOI report said citing Das's report. The report highlights this as an anomaly as such an interpretation would mean that if a user decides to use UPI to split a restaurant bill, the transfers from friends would not count as among the free transactions.
Das said that "NPCI does not explicitly indicate in the said minutes that the banks charge beyond 20 P2P transactions in a month". Hence, the decision to charge for UPI transactions appears to be that of banks and not of NPCI.
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.
The report calls for doing away the difference with the government and the Reserve Bank of India (RBI) compensating banks as UPI is the simplest alternative to cash. Private banks have introduced charges (beyond 20 transactions) on UPI at a time when its use is growing nearly 8 per cent month-on-month during the lockdown. Monthly volumes, which were 80 crores in April 2019, are set to hit 160 crores in August 2020.
With the push from fintechs Google Pay, PhonePe and Paytm, the digital payments segment has become competitive and accounts for the bulk of UPI transactions. Google Pay encourages users to make a one-rupee remittance whenever a contact joins the platform.
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.