The banking regulator has has payment system stakeholders to respond whether these charges should be market-determined or fixed
When India moved its banking from a cheque-dominated system to one that is digitally enabled, the banks began charging for cheque books, assuming that those that needed them were adding additional costs to transactions. However, now banks want digital transactions too to be paid for by the customer, a move that can add significantly to their spreads.
Of course, we have been told time and again that there are no free lunches in an economy, so now the Reserve Bank of India has released a discussion paper on how these charges, if any, can be levied on various payment systems ranging from RTGS to NEFT and UPI to IMPS as well as for credit and debit cards.
Fixed cost or market-determined
RBI has sought the inputs from all stakeholders, including those managing payment systems, to whether charges can be introduced or UPI or should it be a market-determined option that could depend on the banks themselves. Additionally, it has asked for comments on regulating interchange fees on debit and credit cards.
“Discussion on charges in different payment systems, their reasonableness, alternate views, etc., is presented. A few questions have also been raised after each discussion to elicit stakeholder and public feedback. The discussion and the inputs received would be used to frame policy interventions going forward,” RBI has said.
Discussions around digital payments
Last December, the Central bank had committed to releasing a discussion paper around the various charges levied by banks and financial institutions of all kinds via digital transactions, be it through credit cards, debit cards, wallets or the unified payment interface. RBI had asked the stakeholders whether the policy of not levying charges for digital transactions needs review.
At this point in time, the RBI does not charge member banks for usage of RTGS and NEFT infrastructure, while some banks do levy some costs on customers for operational usage. The discussion paper also sought the views of payment system participants over regulating charges for IMPS transactions or even fixing a ceiling on them.
“Administered reduction of MDR can harm the ecosystem and impact the profitability of entities providing these services. This would also affect investments in infrastructure and innovation in the payments acceptance area. It is, therefore, presented that rather than further mandating reduction of MDR, it may be necessary to review the scheme followed by payment system operators regarding the distribution of the charges among the payment system operators regarding the distribution of the charges among the payment system participants,” RBI said.