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Sep 23, 2022

RBI released a discussion paper that said: We’ve let you good people live all this time with “free” payment systems, so should we allow banks to start charging now? Specifically for UPI, which has reached volumes of 10 lakh crore rupees per month? And should we charge merchants?

Deepak's answer is a big NO. He firmly believes that the payments ecosystem (and the economy as a whole) will gain much more than any fees on UPI transactions will. As always, Deepak has a context to his argument and covers a wide range of nuances.

Listen to this podcast to understand his view on different aspects of the UPI payments system, its evolution, and the ways in which it can drive innovation. Also, this podcast covers many different aspects than Deepak's earlier post on the same topic. 

Show Quotes & Time stamps

02:00 - Deepak and Shray trade fascinating stories about payment systems before UPI.

07:00 - The interoperability of UPI is a game changer

10:30 - How much do we pay for other payment systems?

“RBI spends 4,824 crores per year printing cash. None of that cost is borne by anybody except the government itself”

14:30 - The evolution of ATMs, Cheques, NEFT, RTGS, and the big role that RBI played in making these systems affordable for users.

21:30 - Has UPI always been free? Or has it also evolved over time to be free?

“The government went to parliament and passed a resolution to make UPI free… That’s the extent we went to keep this payment mechanism free”

“1,00,000 Crore is now available to banks to make money by parking it RBI and earning interest…. This is because people want to keep money with banks to make UPI payments”

31:00 - How much does it actually cost to run the UPI payments system?

“NPCI spends just ~680 crores per year maintaining the UPI infrastructure. Compare that against the float income that banks make on the additional 1 lac crore float”

34:00 - The argument that UPI is a toll road so you should charge for this "public infra"

“Credit cards transact about 100k crore a month, debit cards 60k crore per month, ATM withdrawals are at 300k crore per month…. So even now, after all these years, credit + debit card transactions are not more than cash”

41:00 - If you don’t let players charge for UPI, who will fund innovation?

“Internet protocols were free and they disrupted the world through innovation”

“Interestingly, in the payments ecosystem, all innovation has come from the regulator and not private players”

43:40 - Counter arguments from Deepak’s Twitter on why UPI shouldn’t be free.

44:00 - Google and PhonePe did all the handwork to make UPI popular. Now you’re telling me I can’t make money on it?

“You’re building a road and they tell you... you can never charge a toll. But you still keep building that road… that’s the payment apps for you”

50:00 - Let’s say that the biggest private players leave because you won’t let them make a profit. The top 2 guys control ~75% of all transactions. What happens to the ecosystem now?

1:02:00 - Why regulators have enforced limits on incentives and fees?

“Financial regulation is not like tech where if you’re too big, rules change for you. Here, if you are too big, and you disturb the system, the regulator first makes you small and then beats you”

1:05:30 - Government responses to the UPI monetization paper were very harsh. Why so?

“Hoarding cash is ok. Spending that cash on the economy creates a whole new economic system that’s outside the view of the government. That’s not ok”

“From Jan 2020 to now, the total ATM withdrawals are flat. UPI has gone from 120k crore to 1000k crore. The fact that UPI transactions are free has reduced cash transactions”

1:09:30 - The number of UPI transactions has drastically increased. But, is that all? The UPI tech reached its full maturity? What do we have to look forward to wrt UPI?

1:14:00 - UPI as a credit check for lenders and a game-changer for quick small loans


There’s a lot more interesting stuff ahead with UPI. We’re just getting started!