UPI is moving in an interesting direction, one that will take it places not previously ventured into by digital public goods, and make India’s payment system adaptable and useful across the world. I had advocated this way back in February 2022. But now, going by the RBI’s latest moves, the UPI architecture and design is set to act as a global payment interphase (GPI).
Inter-currency exchange and settlement requires central bank digital currency (CBDC) at least for global trade and or wholesale transactions. On September 20, during the Global Fintech Fest 2022, RBI Governor Shaktikanta Das along with Nandan Nilekani, Chairman of Infosys and Advisor to NPCI, and Biswamohan Mahapatra, Chairman National Payments Corporation of India (NPCI), announced the three building blocks for making India’s payment system more adaptable and useful across the world. Das launched three key initiatives — RuPay Credit Card on UPI, UPI LITE, and Bharat BillPay Cross-Border Bill Payments.
RuPay Credit Card on UPI opens up an interesting opportunity for Indian banks to offer credit cards in all the countries that are deploying UPI. It opens up the space for Indian banks to take their credit disbursement global. A number of countries are contemplating or deploying UPI now; this will enable Indian banks to piggy ride the deployment. If Indian banks find it difficult to offer Rupay-based credit cards globally, Indian fintech can move into this space. CRED and others might be thinking about it now. In a way, a digital infrastructure is being created for them.
Which is why the rapid deployment of UPI across the world should lead to a redefinition of its purpose from just being digital public good to becoming a digital public infrastructure
The deployment of RuPay Credit cards to UPI will allow QR-based codes to be deployed and facilitate micro payments across the world. This would change the merchant to buyer payment interphase not only in Asia but also in Africa. This will lower the cost of transaction or credit across credit-starved societies in Asia and Africa — an enormous fintech opportunity. This is where UPI lite would play a major role as it could be used on cheaper phones too, as it takes lesser digital space and consumes low telecom bandwidth.
All these developments bring us to a critical decision point — something that the RBI triggered with a paper on 17 August on the introduction of the charges on UPI transactions.
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The discussion paper by RBI provides a transparent approach towards an issue which has a very strong private and public interest. This is a better way of handling a contentious policy issue that has implications beyond UPI or even the Indian banking industry.
The debate is around whether UPI should charge a fee for transactions on its platform. This is a very important issue as it not only defines the most successful digital public goods (DPG) — UPI — but also affects the contours of numerous other DPGs and digital public infrastructure. The launch of the three products by the RBI governor on 20 September also has a bearing on the charges, not only in India but in countries that propose to adopt UPI.
A public park is a public good as the state does not charge for using a public park directly. Local or national taxes may be used for making the park, but it remains free to use by all people and not just the taxpayers or citizens. Similarly, UPI as a public good means that NPCI, the organisation that owns it, should not charge a fee from users. It does not cost NPCI anything to make this public good as it was built by volunteers. There is a cost of hosting and maintaining but it is a small pittance compared to the savings it gives to the economy. By reducing the cost of transactions to zero, it has been able to bring in many more transactions into its fold. Thus increasing the taxation on these transactions via GST or other direct taxation.
This brings us to the big question: who wants to charge fees for UPI transactions? Is it NPCI, or the merchants, payment wallets, credit cards and banks that want to levy a fee for every transaction. These are all service providers and if they are asking NPCI/ RBI that they want to charge for these transactions, is it not just odd? They did not pay for building UPI infrastructure directly. They can justify that their taxes also funded it, but that analogy is weak from the public goods perspective. As they are trying to recover the taxes through this fee.
The only justification for a charge is if value addition is created on top of the transaction. Certain payment wallets charge for say school fees payment, utility payments, and others. This is done by these companies being monopoly providers of the payments to these merchants. This is fine to the extent that a facilitation or service exists over and above the UPI transaction being provided.
For instance, an ice cream vendor inside a park can charge for the ice cream he is selling but should not charge a premium to consumers for selling in a public park. UPI cannot be made into a toll highway where a charge is levied for usage; even if a small flat charge is levied it will discourage small transactions, which will affect small merchants and micro entrepreneurs who are expected the most from this DPG. An ad-valorem charge will also ultimately affect the volume of transactions on the system and that is not the goal of the DPG.
UPI is a global success story and it should not be derailed by global lobbies that have a vested interest in DPG becoming a private product and comparable with their networks. There can be a paid parking for cars near a public park, similarly if there is a value addition on any end of transaction that can be charged by the value provider. But the charge should be transparent. For instance, if credit is provided to the merchant or consumer it can be charged but it should not be opaque, or merged into the pricing or be the cost of the transaction itself. This is what UPI can bring to the global payment industry.
They know very well and must understand that UPI is the biggest influencer for building a DPG in the payment industry in almost every country. The American FedNow wants to grow up to be a UPI. The UAE, Brazil and Spain are all trying to emulate or recreate UPI. The RBI must respect that the DPG, like UPI, is now changing and influencing global payment transparency and this is good for all stakeholders — not just the consumers but also banks and merchants, globally.
