Bombay : A Reserve Bank of India discussion paper on payment fees released on Wednesday has disappointed industry and analysts as it raises multiple questions but does not offer solutions or take a position on them. which leads to persistent uncertainty.

The document makes reference to how some payment mechanisms charge consumers while others do not, and some indirect references to the lack of justification for a free service.

The highly anticipated paper, announced in December, asked 40 questions about fees for digital payment methods and requested comments by October 3. Topics include Real-Time Gross Settlement (RTGS), Immediate Payment Service (IMPS), Unified Payments Interface (UPI), Debit Cards and Credit Cards.

“The working paper released by RBI takes no position and keeps it completely open in terms of regulating the various fees for various payment mechanisms such as debit cards, credit cards, prepaid payment instruments and UPI “, Macquarie Research analysts said in a note to clients on Wednesday.

In fact, the document stated that its intention is to present various issues in an unbiased manner to get feedback on a set of issues, the idea being to get input and then use it for policy-making. “At this point, it is reiterated that RBI has taken no specific position or opinion on the issues raised in this discussion paper,” RBI said.

In January 2020, the Center had removed the Merchant Discount Rate (MDR) on UPI and Rupay debit card transactions, leading to exponential growth in payments through UPI. MDR is the charge paid by a merchant to the bank, card network, and POS provider for offline transactions, and to payment gateways for online purchases.

It has been a contentious issue and the industry has repeatedly urged the government to reconsider the decision, citing barriers to innovation and insufficient funds to support and upgrade the required infrastructure. Deliberating on whether the use of payment mechanisms should incur a cost to the user, RBI said that payment system operators are independent entities and have expenses associated with setup, signaling the likelihood that costs are reduced.

Macquarie analysts said transaction fees should eventually be reduced for customers, individuals as well as merchants, and the cost will have to be borne by banks, fintechs, non-bank lenders, payment aggregators and service providers. Although banks may still absorb the impact as they have historically used payments as an acquisition driver and were not making much money, the report says the main challenge will be for other intermediaries who do not have the balance sheets. necessary to take advantage of acquired customers.

“Given that the Discussion Paper solicits comments, views and perspectives on 40 issues raised, there is no concrete outcome or decision from the Discussion Paper that can address with certainty the fee overrun on the different payment instruments,” said analysts at ICICI Securities. in a note on Thursday.

Nevertheless, it is relevant to assess in which direction and on which aspects the regulator assesses payment fees, the note says. The ICICI Securities report drew relief from the fact that the discussion paper deliberated on whether intervention is desirable. The paper asks whether these cost-related frameworks should be market-determined or subject to limits prescribed by regulators or the government. Admittedly, the paper does not answer the questions.

Other pundits saw the central bank paper rekindling the possibility of regulating or reducing MDR or interchange fees for cards and wallets. Derived from the MDR, interchange is a quantum of costs shared with the issuer of certain payment instruments. “(This) could hurt the profitability of card/wallet companies, primarily HDFC Bank, SBI Card, ICICI Bank, Axis Bank, RBL Bank and Paytm,” said analysts at Emkay Global Financial Services Ltd.

That said, the formula suggested by RBI should keep the MDR between 1.2 and 2% versus 2% or more at present, he said, adding that a reduction of 10 basis points (bps) MDR or interchange fees could reduce card activity. asset returns of at least 50 basis points.

Vishwas Patel, chairman of the Payments Council of India (PCI) and director of Infibeam Avenues, said the industry body will submit detailed feedback to RBI within the required time frame.

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