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Private banks levying extra charges on customers for using UPI over 20 times a month


(This story originally appeared in on Aug 25, 2020)

MUMBAI: All the large private banks have introduced charges, ranging from Rs 2.5 to Rs 5, on person-to-person payments using the Unified Payments Interface (UPI) beyond 20 times a month. Although the government has said that payments using UPI would be free, bankers say that the charges have been introduced to prevent frivolous transactions from putting a load on the system.

According to a report published by Ashish Das by the Indian Institute of Technology (IIT), Bombay, banks are interpreting the law to suit them to conclude that, while ‘payments’ are free, transfers can be charged. The report highlights this as an anomaly as such an interpretation would mean that if a user decides to use UPI to split a restaurant bill, the transfers from friends would not count as among the free transactions.

The report calls for doing away the difference with the government and the Reserve Bank of India (RBI) compensating banks as UPI is the simplest alternative to cash. Private banks have introduced charges (beyond 20 transactions) on UPI at a time when its use is growing nearly 8% month on month during the lockdown. Monthly volumes, which were 80 crores in April 2019, are sto hit 160 crores in August 2020.

Part of the reason for the explosion in numbers is the push by fintechs Google Pay, PhonePe and Paytm, which account for the bulk of UPI handles. Google Pay encourages users to make a one-rupee remittance whenever a contact joins the platform.

These companies have also been incentivising transfers through rewards and other benefits. Banks say that there is a ‘misuse’ by accountholders sending money back and forth, which increases the load on the system. The IIT report quotes Section 10A of the Payment and Settlement Systems (PSS) Act, 2007, which says that “… no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving payment by using the electronic modes of payment prescribed under section 269SU of the Income Tax Act, 1961”.

According to Das, payments are not distinct from transfers. “Returning a small person-to-person loan amount is a payment. Similarly, giving gift money is also payment. A small roadside cobbler receiving payments or a student making a payment to a tuition teacher can all be done using UPI, where the law does not make it mandatory for the beneficiary to become a merchant (in the UPI sense) to receive such a payment,” he said.

Although the RBI is the payments system regulator, the UPI platform is provided by the National Payments Corporation of India (NPCI). Banks say the decision to limit free transactions to 20 was taken at a meeting of banks with NPCI on February 14, 2020, where the UPI Steering Committee of NPCI agreed to limit free P2P fund transfer transactions to 20 per month.

“NPCI does not explicitly indicate in the said minutes that the banks charge beyond 20 P2P transactions in a month. Therefore, the decision to charge for UPI transactions is that of banks and not of NPCI,” said Das.


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