The Reserve Bank of India (RBI), in a discussion paper on fees in the payment system, flagged caps on credit card fees as one of the issues to consider. According to the report, the same limit the RBI applies to debit card fees could apply to credit cards, and banks could add 30-day interest to those fees. The document proposes to replace zero fees on Unified Payment Interface (UPI) transactions with a subsidy. He also called for suggestions on whether fees on UPI transactions should be flat-rate or based on a percentage of the value of the transaction. The central bank has asked for comments on the working paper by October 3, 2022. This is the first time the central bank has spoken about regulating credit card fees. In the past, the RBI had capped debit card fees while UPI transactions were free.
Currently, the maximum fee – merchant discount rate, or MDR – that stores pay to banks on debit card transactions is capped based on the merchant’s turnover and the size of the transaction. The maximum banks can charge is capped at 0.9%. The RBI justified an additional charge as a percentage of the transaction amount to cover the 30-day free interest that banks provide on credit card transactions.
Another problem reported by the newspaper is that of surcharges. Surcharge refers to the process of transferring credit card fees from merchant to customer. Some countries allow small merchants to pass credit card surcharges on to the customer to give them the choice to pay by credit card when it is not economical for merchants to accept card payments.
“The goal of RBI’s initiatives in payment systems has been to mitigate friction that can arise from systemic, procedural or revenue-related issues. Although there are many intermediaries in the chain of payment transactions, consumer complaints are usually about high and non-transparent fees,” the RBI said.
The aim, according to the RBI, is to ensure that fees for payment services are reasonable and competitively determined for users while providing an optimal revenue stream to intermediaries.
“To ensure this balance, it was deemed useful to conduct a comprehensive review of the various fees levied in payment systems by highlighting different dimensions and soliciting feedback from stakeholders,” the RBI said.
The discussion paper covers all aspects related to fees in payment systems [such as Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) system, Real Time Gross Settlement (RTGS) system and UPI] and various payment instruments, including debit cards, credit cards and prepaid payment instruments (PPIs). The feedback received would be used to guide policies and intervention strategies.