Given how UPI payments rose from a mere Rs 706 crore in December 2016, to Rs 13,144 crore in December 2017 and to Rs 102,600 crore in December 2018—620 million transactions were done last month—it is clear UPI is gaining a lot of traction. Indeed, by 2020, 80% of all non-cash transactions are expected to be routed by UPI. However, the fact is the volume of cash transactions is high and it remains the preferred currency. But, given smartphones are selling in big numbers and tipped to hit 700 million by 2020, there is a big opportunity—not to mention, a big need—to push digital transactions.
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In order to do that, stakeholders—especially those intermediaries working hard to encourage digital payments—need to be incentivised. The Nandan Nilekani committee, set up to see what needs to be done, may want to assess whether the subsidies and discounts are being channelled quickly to the beneficiaries. For example, banks have been accused of delaying reimbursements of merchant discount rates (MDR) to merchant aggregators and acquirers. While the absolute values may be not be large since these are small-value digital transactions—the estimated MDR in 2016-17 was Rs 3,000 crore—the delay in reimbursements nonetheless needs to be addressed. Indeed, the larger banks appear to be dragging their feet on this, if not altogether stalling digitisation, especially in semi–urban and rural geographies. They have been consistently refusing to raise the inter-change fee which is to be paid to smaller, new-age lenders that are installing micro-ATMs. The big banks—who call the shots in the NPCI—fear they will lose customers to the newer intermediaries and are believed to be pushing for a cut in inter-change rates. That would be a big disincentive for lenders that are installing micro-ATMs and the government must ensure this does not happen.
Also, RBI must remain the regulator for payment systems; while the Watal Committee had said so, the inter-ministerial committee, which is finalising changes to the Payment & Settlement Systems Act of 2007, has suggested otherwise. Since RBI regulates banks which are the backbone of the payments system, RBI must regulate payments systems to ensure systemic stability and safety.
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Most important, the government must take it upon itself to spend more on incentives and, while it cannot compete with PE-backed players like a Paytm, it must view the expenditure as an investment. If a Paytm has to spend what it has to build up a formidable ecosystem, the government has to be committed to spend at least a fraction of this to compete with them. Right now, the number of outlets with a Paytm QR code are several times higher than those with a UPI or Bharat QR; it is only when this changes that UPI can transform from a peer-to-peer money transfer tool to a customer-to-merchant one. This expenditure will well be worth it since few cash transactions means a smaller loss in tax revenues as digital payments drive people into the tax net. So it must spend to promote the UPI QR or Bharat QR—this allows users to either pay via payment apps or even their Master/Visa/RuPay cards. And, in the interim, given their vast network, if all PSU petrol pumps are instructed to carry a UPI/Bharat QR along with the Paytm/MobiKwik ones they carry—the latter are based on commissions the PSUs negotiate with these firms—this will go a long way in pushing UPI payments.