March 26, 2023

(This story originally appeared in on Aug 18, 2022)

MUMBAI: The Reserve Bank of India (RBI), in a discussion paper on charges in the payments system, has flagged capping credit card fees as one of the issues to be considered. According to the report, the same limit the RBI applies on debit card fees could be made applicable to credit cards, and banks could add 30-day interest to that charge.

The paper proposes replacing the zero fees on Unified Payments Interface (UPI) transactions with a subsidy. It has also called for suggestions on whether the charges on UPI transactions should be a flat fee or based on a percentage of the transaction value.

The central bank has called for feedback on the discussion paper by October 3, 2022. This is the first time the central bank has talked about regulating credit card charges. In the past, the central bank had capped debit card charges while UPI transactions were kept free.


Currently, the maximum fee — merchant discount rate, or MDR — that shops pay banks on debit card transactions is capped depending on the merchant turnover and size of transaction. The maximum banks can charge is capped at 0.9%. The RBI has 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 issue flagged by the paper is that of surcharges. Surcharge refers to the process of transferring the credit card fees from the merchant to the customer. Some countries allow small shop owners to pass on credit card surcharges to the customer to give them a choice to pay by credit card where it is not economical for the merchants to accept card payments. “The focus of RBI’s initiatives in the payment systems has been to ease frictions which may arise from systemic, procedural or revenue-related issues. While there are many intermediaries in the payments transaction chain, consumer complaints are generally about high and non-transparent charges,” the RBI said.The objective, according to the RBI, is to ensure that charges for payment services are reasonable and competitively determined for users while also providing an optimal revenue stream for the intermediaries. “To ensure this balance, it was considered useful to carry out a comprehensive review of the various charges levied in the payment systems by highlighting different dimensions and seeking stakeholder feedback,” the RBI said.

The discussion paper covers all aspects relating to charges 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.

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