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Explained | India’s UPI push

The National Payments Corporation of India has allowed non-residents with international numbers to be on-boarded into the UPI ecosystem, while the Union Cabinet approved a Rs 2,600 crore incentive scheme to promote RuPay debit cards and low-value BHIM-UPI transactions

January 25, 2023 06:41 pm | Updated January 26, 2023 01:37 pm IST

File photo: A lady scanning a BHIM QR code to pay at a stall promoting cashless business at a flower and vegetable show in Mangaluru on January 26, 2017.

File photo: A lady scanning a BHIM QR code to pay at a stall promoting cashless business at a flower and vegetable show in Mangaluru on January 26, 2017. | Photo Credit: MANJUNATH HS

The story so far: On January 10, the National Payments Corporation of India (NPCI) paved the way for international (phone) numbers to be able to transact using UPI. A day later, the Union Cabinet chaired by Prime Minister Narendra Modi approved an incentive scheme for promotion of RuPay debit Cards and low-value BHIM-UPI transactions (person-to-merchant) in FY 2022-23. The scheme has an outlay of Rs 2,600 crore.

These measures could prove significant for the UPI-based payment ecosystem which has largely witnessed a sequential rise in the previous calendar year.  

What about international on-boarding?  

In a nutshell, non-resident accounts such as non-resident external accounts (NRE) and non-resident ordinary accounts (NRO), having international numbers, will now be allowed into the UPI payment system. NPCI had allowed UPI transactions to and from NRO/NRE accounts linked to Indian numbers back in October 2018.  

NRE accounts are those used by non-residents to transfer earnings from foreign soil to India while NRO accounts are used to manage income earned in India by non-residents.  

At present, users from ten countries will be able to avail the facility— Singapore, Australia, Canada, Hong Kong, Oman, Qatar, the United States of America, Saudi Arabia, United Arab Emirates, United Kingdom and Hong Kong. More inclusions are likely in the future.

All members of the interface, such as banks and payments platforms, have till April 30 to comply with the guidelines. 

Deep Agrawal, Head of Payments at online payment app PhonePe, told The Hindu that the development would allow NRIs to use the payment method for making utility bill payments for their families (or themselves) in India, make purchases from e-commerce or online platforms and make payments to physical merchants who accept UPI QR based payments when they travel to India.  

Addressing theinfrastructural and technological changes required to support such payments, he said, “Currently, all the internal systems as well as ecosystem players such as banks, NPCI, etc only understand India-based mobile numbers for UPI transactions. With this enablement, a significant number of systems will need to start understanding the same.”  

Mr Agrawal added, “This might also require changes in integration with SMS service providers and international telecom networks.”

What incentives are being offered? 

Under the scheme, acquiring banks will be given financial incentives for promoting point-of-sale and e-commerce transactions using RuPay debit Cards and low-value BHIM-UPI transactions (person-to-merchant) for the ongoing financial year. Acquiring banks are those which install and manage apoint-of-sale terminal (or the hardware system required to process payments) at retail outlets. The issuing bank is responsible for issuing the card to the customer.  

This scheme has been formulated in compliance with Finance Minister Nirmala Sitharaman’s FY 2022-23 budgetary endeavour to continue financial support for digital payments, focusing on promoting the use of payment platforms that are economical and user-friendly.

Jindal Haria, Director (Financial Institutions) at India Ratings & Research, told The Hindu that the incentive scheme would reduce cash-carrying and storage risk. He noted that microfinance set-ups where cash in transit was huge and caused frauds and thefts have started seeing benefits emanating from digitisation, in terms of cost of cash transactions.

He added that it would also eliminate the costs associated with small denomination notes and coins, among other things.

What is the discussion on Merchant Discount Rate (MDR)? 

Merchant Discount Rate (MDR or Merchant Service Fee) is the charge recovered by the acquirer from the final recipient of the payment, that is, the merchant. It is collected by the acquirer to compensate the varied service providers and intermediaries in the payment system.  

Presently, there is no MDR levied for RuPay-based debit card and UPI transactions. Stakeholders are hence concerned over cost recovery for the services they provide.  

In August 2022, the Finance Ministry tweeted that it was not planning to levy any charges for UPI services, adding, “The concerns of the service providers for cost recovery have to be met through other means.” 

The Reserve Bank of India (RBI) expressed concerns about the potential adverse impact of the zero MDR regime on the growth of the digital payments’ ecosystem. The National Payments Corporation of India (NPCI)requested the incentivisation of BHIM-UPI and RuPay debit card transactions to create “cost-effective value proposition for ecosystem stakeholders, increase merchant acceptance footprints and faster migration from cash payments to digital payments.” 

According to Mr Haria, “Ideally innovation needs to be sustained. There could be a staggered approach to pricing (slab wise/ depending on transaction size) and it could be significantly lower than MDR.” 

He adds, “This could provide for innovation, make it somewhat profit accretive and provide incentive to all participants to innovate further while keeping very small transactions out of the ambit.” Further, higher participation in retail payments would improve the creditworthiness of the transactors, he points out. Analytics could enable banks to assess these and bring them into formal finance channels if not already there and this could play a further important role in financial inclusion.  

How is UPI placed in our overall payment ecosystem?  

As of January 17, 3,192.70 million transactions approximately worth Rs 5.52 lakh crore have been facilitated using UPI in the ongoing month, as per NPCI data. 

In the previous calendar year, excluding one month of fall (between January and February), the volume of UPI transactions has been on an upward trajectory throughout. As per the DigiDhan dashboard maintained by the Ministry of Electronics and Information Technology (MeitY), BHIM-UPI accounted for 52% of all digital payments in FY 2021-22. At present, it stands at 61.38%.

The BHIM-UPI app was unveiled by Prime Minister Modi during the inauguration of the ‘DigiDhan Mela’ in December 2016. The Bharat Interface for Money (BHIM) is a payment app that lets the user make digital transactions using the Unified Payments Interface (UPI).  

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