While the government has maintained that UPI payments would remain free, banks say they brought in these charges to prevent frivolous transactions from overburdening the system.
Large private banks in the country are reprotedly charging a fee, varying from Rs 2.5 to Rs 5, on person-to-person (P2P) payments initiated via UPI (Unified Payment Interface) if the number of transactions exceeds 20 in a month. While the government has maintained that UPI payments would remain free, banks say they brought in these charges in order to prevent frivolous transactions from overburdening the system.
The charges are Rs 2.5 for transactions below or equal to Rs 1000, and Rs 5 for transactions above Rs 1000, excluding GST (goods & sales tax).
However, a report published by Ashish Das of IIT Bombay, claims that banks are interpreting the law as per their convenience to say that while ‘payments’ are free, transfers can be charged. The report states that this may mislead other banks in the banking industry.
Pointing this out as an anomaly, the report states that such an interpretation would imply that if a user decides to share a restaurant bill using UPI, the transfers from friends would not be considered as free transactions.
Stating that such an interpretation is flawed, the report notes that effective November 1, 2019, the government brought in a law under Section 10A of the Payment and Settlement Systems (PSS) Act, 2007 which says, “… no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment prescribed under section 269SU of the Income-tax Act, 1961.”
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The report says that the decision to charge for UPI transactions is that of banks and not of the NPCI (National Payments Corporation of India), which manages the BHIM-UPI interface.
“So long as a transaction is done through UPI, by virtue of UPI being a payments interface, there is no ground (as per extant laws) to consider an account-to-account funds transfer as not being a payment,” Ashish notes.
He adds, “Needless to mention, banks incur significant costs on cash management to facilitate financial transactions in the country. Major portion of such costs are not directly passed by the banks to their customers. The cost of servicing UPI, however, is miniscule compared to the costs the banks incur on handling cash.”
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 RBI is called for (with UPI being the simplest alternative to cash in this era of mobile phones), the report says.
UPI is the most commonly used means of payment after cash, the report states, with its use increasing nearly 8% month on month during the lockdown. Monthly volumes are set to reach Rs 160 crore in August 2020 from Rs 80 crore in April 2019.
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