By introducing charges on Unified Payments Interface-based person-to-person (P2P) payments beyond 20 transactions a month, some banks seem to have interpreted the Payment and Settlement Systems (PSS) Act, 2007 in a way that suits them.

The aforementioned observation is as per a technical report titled “Deviating from the BHIM (Bharat Interface for Money)-UPI Law” by Ashish Das, Department of Mathematics, Indian Institute of Technology Bombay. UPI-BHIM is the most commonly used means of payment after cash.

In the report, Das said banks have tried to highlight “payments”, as if it is different from “fund transfer” transactions.

The report highlighted that effective November 1, 2019, the government brought in a law under Section 10A of the 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 a payment by using the electronic modes of payment prescribed under Section 269SU of the Income Tax Act, 1961.”

In this regard, the Professor emphasised that the PSS Act explicitly mandates no imposition of charge, upon a person (without qualifying such a person), for using certain prescribed electronic modes and no leeway has been provided to banks and system providers in this regard.

Payments vs transfers

“There is no ambiguity in the definition of ‘payments’. Payments can be effected in a number of ways using ‘common modes of payment’ and that includes bank transfers,” Das said.

So long as a transaction is done through UPI, by virtue of UPI being a payments interface, there is no ground (as per extant laws) to consider an account-to-account funds transfer as not being a payment, reasoned the Professor.

While banks insist they do not levy any charges to customers for making “payments” using UPI and are completely compliant to the regulations under Section 10A of the PSS Act, Das feels their claims rest on a premise that “payments” are different from “funds transfer”.

“Banks try to justify that there is a clear distinction of a UPI funds transfer, restricted to P2P, and the UPI merchant payments, that is person-to-merchant (P2M) transactions, which are identified based on MCC (Merchant Category Code).

“However, these are business-related superficial distinctions created by NPCI (National Payments Corporation of India) for UPI, with the sole purpose of charging merchants for UPI transactions,” Das said.

Bank charges

The banks that charge for P2P payments using UPI beyond 20 transactions a month include HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank, the report said.

HDFC Bank charges ₹2.75 for transactions under or equal to ₹1,000, and ₹4.75 for transactions above ₹1,000 on P2P payments using UPI beyond 20 transactions a month.

ICICI Bank, Axis Bank and Kotak Mahindra Bank charge ₹2.50 for transactions under or equal to ₹1,000, and ₹5 for transactions above ₹1000 on P2P payments using UPI beyond 20 transactions a month.

Additionally, Goods and Services Tax (GST) are applied on these charges.

Costs

Das assessed that if UPI transactions were to increase from the current level (of about 160 crore transactions a month) to 300 crore transactions a month (annually 3,600 crore UPI transactions), at a reasonable cost of ₹1 per transaction, it would cost the banking industry ₹3,600 crore only.

“Now, is this a big amount to manage such a tremendous payments infrastructure developed for the country, which has the greatest potential to reduce cash in the country unlike any other digital means of payment?

“...We should not forget that consumers pay a huge price to banks by implicitly sacrificing interest on savings and current deposits,” the professor said.

According to a report, the implicit price paid by the savings and current account depositors annually (for FY19-20) stood at ₹1.29-lakh crore.

“Thus, what is perceived as ‘free’ service of savings/current accounts by banks is actually paid ex ante by depositors by agreeing to park their funds in these accounts at a lower return.

“This is possibly the reason why the government insists on zero charge for a prescribed digital payments product like the UPI,” he said.