With charges on Unified Payment Interface (UPI) transactions staying at zero for the foreseeable future, PhonePe co-founder and CEO Sameer Nigam reiterated that the fast-growing Indian payments ecosystem led by UPI has no path for recovery of investments or profitability.
“We are getting a lot of global capital into digital payments. But the path to recovery and profit is not there,” said Nigam said on September 22 while speaking at the Global Fintech Fest in Mumbai.
Nigam pointed out that when payment modes are made free of cost there is an underlying assumption that companies involved in these businesses will have alternate sources of revenue. However, that may be possible for banks, but not startups, he added.
“I don't think we can go below cost recovery (on charges). But that's where we are right now, which is my concern,” Nigam said.
The PhonePe chief was in conversation with P Vasudevan, chief general manager, department of payment and settlement systems, Reserve Bank India (RBI). The session was moderated by Razorpay co-founder and CEO Harshil Mathur.
Unlike other digital payment methods, no fees are levied to merchants accepting UPI and RuPay debit card transactions as per the government's Zero merchant discount rate (MDR) policy, which was formulated to encourage the adoption of these homegrown payments services.
However, with UPI now making up for over 60 percent of digital transactions and recording transactions worth Rs 10.70 lakh crore every month, the industry has argued that zero fees are a loss to the ecosystem and will discourage further investments in the space with no returns.
In December 2021, the government had announced a Rs 1,300 crore scheme to incentivise banks and through them payment gateways and UPI players for transactions. To be eligible for the full incentive, banks were required to show at least 10 percent year-on-year (YoY) growth in the number of RuPay Debit card and 50 percent YoY growth in UPI transactions by the end of the last quarter of the scheme.
Recently, Vishwas Patel, the Chairman of the Payments Council of India (PCI) and executive director of omnichannel payments provider Infibeam Avenues took to Twitter with a complaint saying that all of the monetary support provided by the government to make up for the zero charges levied on UPI transactions has been appropriated by banks.
In August, the Finance Ministry clarified that the government is not considering levying any charges on UPI transactions. The government's clarification came after the Reserve Bank of India (RBI) floated a discussion on charges for Indian payments systems."Charges for payment services should be reasonable and competitively determined for users while also providing optimal revenue stream for the intermediaries," the central bank had said in a release. The feedback received would be used to guide policies and intervention strategies.