Fair pricing could help sustain UPI network, Pg12

Key Highlights:

• The sustainability of the Unified Payments Interface (UPI) network is under review due to high operating costs and the zero-MDR regime.
• A report by the Parliamentary Standing Committee on Finance estimated annual operating costs at Rs 20,700 crore against a Rs 2,000 crore government allocation.
• The Department of Financial Services is considering options like restoring Merchant Discount Rate (MDR) for high-value transactions or large merchants.
• Another option being examined is phasing out government support through a tiered incentive structure for UPI.
• A proposed principle suggests keeping UPI free for consumers and small merchants, while applying a capped MDR for larger commercial users and higher-value transactions.
• Payment data from UPI, such as PhonePe's Pulse Pro, is being integrated with PM GatiShakti for public planning and economic analysis.

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Detailed Insights:

• The current UPI model relies on consumers paying no visible cost and merchants accepting payments without MDR, with banks and payment companies absorbing expenses.
• The zero-MDR policy, while boosting adoption, has led to significant financial strain on payment service providers and banks.
• Reintroducing a uniform MDR could disproportionately affect small merchants and hinder adoption in less developed regions.
• The article suggests a differentiated MDR approach, considering merchant margins, administrative feasibility, and local adoption rates.
• Beyond MDR, commercial services built around UPI and the public value of anonymized payment data are identified as potential revenue streams.
• Aggregated UPI transaction signals can provide valuable insights into spending patterns, adoption rates, and economic formalization for public planning.
• The integration of PhonePe's Pulse Pro metrics with PM GatiShakti exemplifies leveraging payment intelligence for infrastructure and urban development.
• Policymakers aim for an ecosystem-wide view, combining public infrastructure with private innovation, while setting standards for data privacy and access.

Key Concepts Involved:

• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI facilitating inter-bank transactions.
• Merchant Discount Rate (MDR): A fee paid by a merchant to their bank for accepting payments through digital channels.
• Zero-MDR Regime: A policy where merchants are not charged any fee for accepting payments via UPI or RuPay debit cards.
• PM GatiShakti: A national master plan for multi-modal connectivity infrastructure development in India.