Source: The Hindu
Manifest pedagogy: The transformation towards a less cash economy along with possible downstream benefits of using electronic payments in terms of Fastag, broadening of tax collections and operational efficiency, the innovation made through UPI/RUPAY have been a step in the right direction. India has been able to establish itself in the fintech sector and beyond with these initiatives.
In news: With a view to promote digital payments, no MDR charges will be applicable on Rupay and UPI from Jan 1, 2020.
Placing it in syllabus: Cashless Economy
Static dimensions: Digital payments & Demonetization
Current dimensions: MDR& MDR rules for UPI, RuPay
Content:
Digital payments:
- “Faceless, Paperless, Cashless” is one of professed role of Digital India.
- As part of promoting cashless transactions and converting India into less-cash society, various modes of digital payments are available.
- These modes are: Banking Cards, USSD, Aadhar Card, AEPS, UPI, Mobile Wallets, Banks Prepaid Cards, Point of Sale (PoS), Internet Banking, Mobile Banking, Micro ATMs.
The Reserve Bank of India has forecast an outcome of 50 per cent increase in mobile-based payment transactions as per its ‘2021 vision document’.
According to global advisory KPMG, digital payments in India are witnessing thriving growth with a compound annual growth rate (CAGR) of 12.7 per cent in the number of non-cash transactions.
One of the key factors which played a transformational role and democratised mobile payments in India was the role played by wallet players. Another factor that has led to the next wave in mobile payments is the Unified Payments Interface (UPI)-based real time payments.
Some factors such as inter-operability and possibility of origination across different platforms such as mobile wallets, are further fuelling the growth of UPI transactions. The volume of UPI transactions have increased at a CAGR of 246 per cent during the period from 2016-17 to 2018-19.
Demonetization:
- Demonetization is a process of stripping a currency unit of its status as a legal tender.
- Once demonetized, the currency unit will no longer be valid as legal currency.
- Usually, a new currency replaces the old currency unit/s.
- In 1946, the Reserve Bank of India had demonetized Rs. 1,000 and Rs. 10,000 currency notes which were then under circulation.
- In 1954, the Government introduced new currency notes of Rs. 1,000, Rs. 5,000, and Rs. 10,000 which were demonetized in 1978.
- On November 8, 2016, honourable PM Narendra Modi announced the demonetization of the currency notes of Rs. 500 and Rs, 1,000.
Benefits:
- It will help formalize India’s informal economy and help in the creation of a less-cash economy.
- It will plug financing to terrorists.
- It will help unearth black money.
- Will expand the fiscal space of the government.
- It will help in increasing savings.
- It will help in reducing interest rates in the banking system.
- Reduce counterfeit currency notes.
Merchant Discount rate (MDR):
- MDR is a fee charged from a merchant by a bank for accepting payments from customers through credit and debit cards in their establishments.
- MDR compensates the card issuing bank, the lender which puts the PoS terminal and payment gateways such as Mastercard or Visa for their services.
- MDR charges are usually shared in pre-agreed proportion between the bank and a merchant and is expressed in percentage of transaction amount.
- Since 1 January, 2019 small merchants pay a maximum MDR of 0.4% of bill value and larger merchants pay 0.9%.
MDR rules for UPI and Rupay:
- In order to promote digital payments, no MDR charges will be applicable on transactions through RuPay and UPI platforms from January 1, 2020.
- RuPay and UPI will be notified soon as the prescribed mode of payment for digital transactions without any MDR by the Department of Revenue (DoR).
- The business establishments with annual turnover of Rs 50 crore or more shall offer such low-cost digital modes of payment to their customers and no charges shall be imposed on customers as well as merchants.
- Now indigenously developed digital payment medium like RuPay and BHIM UPI will have edge over the payment gateway promoted by foreign companies.
- RBI and banks will absorb these costs from the savings that will accrue to them on account of handling less cash.
- Two laws- Income Tax Act and the Payments and Settlement Systems Act, 2007 have already been amended to give effect to these provisions.
Criticisms:
- According to the Payments Council of India, there will be a significant negative impact on the payment ecosystem – innovation, job losses and a slowdown in the expansion of the digital payments.
- If there is zero revenue to be made from the over 500 million-plus active RuPay debit cards, service providers will start withdrawing PoS terminals to cut their losses.
- Multinational electronic payment companies such as Visa and Mastercard are likely to face losses.
- The move could affect credit card companies in the long run as more people will be influenced to make payment through cheap UPI platforms.
