Context: Rising digital payments growth supported by banks and fin-tech companies has assumed significance and, but requires a rational structure of pricing.
Evolution of Digital Payments in India
Steered by the Reserve Bank of India:
Real Time Gross Settlement System or RTGS (2004):
Covers large value payments on stock trading, government bond trading and other customer payments.
Reduces huge risks (like Harshad Mehta scam) and time taken for settlements.
National Electronic Funds Transfer, or NEFT: ensures bulk debits and credits to support retail payments .
Securities Exchange Board of India (SEBI’s) T+1 settlement (T is for transaction date) will deepen financial market by attracting more international capital.
National Payments Corporation of India (NPCI) is the umbrella retail payments institution to build a super highway for digital payments systems and expanding it in rural and semi-urban areas.
Achievement of NPCI:
Unified Interface Payments (UPI): Against entranced formidable international players like VISA and Mastercard, UPI is well recognised.
The Bank for International Settlements’ (BIS’s) endorsement of the NPCI model in 2019 is a major accolade.
Merchant Discount Rate (MDR): Prescription of zero MDR for using RuPay and UPI was aimed at popularising digital payments benefitting both customers and merchants.
Issues with the Payment System in India:
Rising demand of converting NPCI into for-profit organisation: which act against the basic foundation of the NPCI -
The idea of the NPCI as a not-for-pro?t company has a link from the Bangirocentralen (BGC), which considers payments as public good.
Converting it into a for profit will be a retrograde step with potential loss of consumer surplusand strategic implications.
Exclusion of digital payment products provider from MDR waiver: is unjustified and had adverse effects.
This has forced banks to switch to mainly Visa and Mastercard for monetary gains.
As customers were induced by such supplier banks, it created a kind of indirect market segmentation and cartel formation.
Way Forward:
Settle the pricing:
It should be based on analysis of producer surplus, consumer surplus and social welfare derived from cost-volume-price data.
It should ensure fair amount of return to payment service providers including Fin-Tech companies and customers.
Supporting the NPCI: like the RBI providing free use of the RTGS and other products, the strategy should be to assist the NPCI ?nancially to provide retail payment services at reduced price.