This is an audio transcript of The Morning Brief podcast episode: Digital Divide: Who Should Pay for Payments? 

BG Sound 0:01  

This is the morning brief from the economic times. 

Anupriya Bahadur 0:13  

That's the sound of digital payments going through simple, fast and free. But maybe not for long. The RBI has now opened the door to a massive debate, asking if digital payments should be charged or remain free.

BG Sound 0:33  

Pay for payments, why should I pay for UPI? Let the shopkeeper be charged or the receiver be charged? I wont pay to make a payment, especially a small payment. 

Anupriya Bahadur 0:48  

Well, that's the obvious stand you and I would take as consumers, but it is a service and there is a cost and a large one at that. So when who bears it, the RBI has posted 40 Such questions no less in a recent discussion paper that has invited all stakeholders to send in responses focusing around the freebie status of digital payments.

BG Sound 1:10  

Our idea was to get stakeholder comments and suggestions. So let the comments come. We will examine them and move forward.

Anupriya Bahadur 1:20  

While Mint Street has the questions and North Block has already taken a strong stand. And the payment ringmaster such as FinTech and bankers are waiting on the sidelines at this point with bated breath. We get your opinions from across the board as we speak to FinTech leaders.

Amrish Rau 1:36  

I'm Amrish Rau, Im the CEO of Pine labs,

Anupriya Bahadur 1:39  

digital leaders at traditional banks.

Akhil Handa 1:41  

Im Akhil Handa. I'm the Chief Digital Officer of Bank of Baroda,

Anupriya Bahadur 1:45  

and veteran bankers who are now exploring the new ecosystem.

Rajnish Kumar 1:49  

Hello, I'm Rajnish Kumar, currently chairman of BharatPe and ex chairman of State Bank of India.

Anupriya Bahadur 1:56  

It's August 26. I'm your host Anupriya. And you're tuned into digital divide, who pays for payments on the morning brief. FinTech firms are the largest stakeholders in this discussion. Let's get in Amrish Rau who has been part of the FinTech evolution, as well as revolution in many roles, who is now CEO of leading merchant platform, pine labs. And Rich, thank you for joining in. Let me start with your first take on this paper, which is a first of its kind in many ways, from the payment and payment discussion from the RBI. No stance from the regulator Amrish purely questions and a platform for discussion. What's your take on it?

Amrish Rau 2:33  

Yeah, I think this is a very important topic, digital payments in India have gone through the small pockets of the country, most consumers are feeling confident in using digital payments, and even merchants are adopted to it. At this time, we have two major goals in front of us one to continue this growth all across the country. But then the second piece to it is how do we take brands like UPI global. And that, of course is going to require funding. That, of course is going to require a lot of support from the ecosystem. As you rightly said, this is a first by RBI, where RBI has actually reached out to the larger ecosystem for an opinion around the world. When you look at what's happened in Australia, UK, and also in the US, the regulators have continued to work very closely with banks and financial institutions, but also with the FinTech community, as they come up with regulations which enable for the spread of digital payments. By making this broad based, I think RBI has had a really, really good start,

Anupriya Bahadur 3:33  

you know, Amrish you mentioned about taking UPI global and the global showcase, but also mentioned that there is a cost involved in that showcase as well. Even right now, with the smallest transaction, there is a cost, it takes an entire village to put that digital transaction, which I would find very convenient to do at a at a merchant at this point. There's also the cost of infrastructure as well as innovation, who bears it right now.

Amrish Rau 3:58  

See, right now, unfortunately, that model has not been well developed. And in fact, all the people who are right now bearing these costs are bearing it quite grudgingly. So, for example, if you look at the number of UPI transactions that you have, in your monthly statements, that number is just continuing to increase. What that effectively means is the number of UPI transaction in a banking environment is humongous. And the cost associated to it has to be borne by banks and financial institutions. On the other hand, in a while, it's very easy to talk about the great work that NPCI has done in driving UPI in India. It's the fintechs who have actually distributed UPI all through the Indian ecosystem. And today even they don't have a very clear revenue model when it comes to UPI transaction. Now, of course, over the last 12 months, the government has come up with a certain amount of Kitty to try and support the growth of UPI transactions. But when you Look at every way, every person in the ecosystem, you can safely say that even at 1200 crores 1300 crores is maybe 1/4 or 1/5 of the real cost associated to the growth of UPI in India. 

Anupriya Bahadur 5:14  

But you talked about the kitty Amrish, who's really enjoying that kitty? Because there's a bit of debate on that as well, is it getting distributed adequately across the ecosystem to the real cost holders?

Amrish Rau 5:25  

Look, the way I will summarize this is, I think that amount is right now inconsequential, where it does not show up in anybody's p&l At this point of time, I'm just being completely transparent and honest, the kitty that we require to take the Indian payments systems within our country, I'm taking it global, I would say it would be almost 10x The less we invest into Indian payments, the more we try and hamper the growth of the Indian payments, ecosystems globally and also within the country law. You know, I want to point this out, right? We are in an environment of geopolitical turmoil. And one of the things which becomes extremely important is to have a sound payments ecosystem within the country and also your payments ecosystem being accepted across the world. It's extremely important that rupay UPI Indian banks issued cards at the same time Indian banks issued NPCI handles get accepted at all possible locations. But I think the only way in which we can progress This is to ensure that there is a very clear operating model there is a very clear value chain and a very clear monetization engine on the Indian payments ecosystem and for that what RBI has done is extremely important through this paper which was released. 

Anupriya Bahadur 6:54  

So to just digress a bit, I want to take the example of RTGS as well, because the RBI puts it in because they say we don't charge for RTGS and NEFT, as the RBI has built the infrastructure for it, the UPI infrastructure however was built by private parties. Do you think at some point, there is merit on discussing whether there should be parity across the board in these kinds of payments.

Amrish Rau 7:16  

So again, these discussions are going to define all of those, right, which says that what should be the right pricing. I'll give you another example. When you look at the ATM industry today, the number of ATMs which are getting deployed in India has reduced dramatically over the last four or five years. And that's because the pricing model on ATM deployments and ATM transactions has become extremely confusing. And somehow in the consumer head, it's become to a point which says if I use an ATM, there is a cost associated with it. And as ATM usage has gone down, when it comes to, let's say, deployment of POS, or coming up with payment gateway systems, all for that matter, check truncation initiatives, which which have been coming up over the last 20 years in many pockets, there is cost associated with it. Now what is that individual costs? Who needs to get compensated for it? It's very clear in my head, and when I say me is me personally, or having done this over the last 20 years, that is very clear in my head. Having said that, I think that entire ecosystem and all the various stakeholders need to be made aware of it. And then very clear monetization module needs to get developed.

Anupriya Bahadur 8:26  

What is the relationship with banks right now we just wondering because bankers have been very quiet on this whole debate up now, we've obviously heard a lot from the FinTech industry, but the bankers are sort of watching this from the sideline at this point.

Amrish Rau 8:38  

Right now, the banker community is extremely keen to work with the fintechs. At the same time, what is very clear is that fintechs have realized that the way RBI wants the fintechs to operate is hand in glove with banks and financial institutions. So just a few days back, I tweeted this thing that RBI continues to play Cupid between banks and fintech. So I do think that relationship is going to get stronger over the next few years.

Anupriya Bahadur 9:09  

So as Amrish said, this is a very hand in hand process with banks and fintech that will keep this digital Halo for the economy growing. But what is the balance between the segment's right now, Saloni Shukla from the Economic Times who gets us all the banking buzz logs in as well. Hi Saloni welcome

Saloni Shukla 9:30  

thank you so much Anu for having me. 

Anupriya Bahadur 9:32  

Saloni, what fintechs want is monetization as they have put in a pound of flesh into this business, but banks have partnered up but not really feeling the pain as much right now. 

Saloni Shukla 9:42  

So two large aspects of this one is obviously banks and the other is payment companies. So for banks, okay. See payments is hardly 5% of their business. There is no money in it. They are realizing now is that it is not the payments that is making money. It's the data behind the payments, you know, that's making money. And that is what the Google pays and the phone pays and Paytms of the world have now gone are that they that they have a goldmine of data sitting with them. If you look at there was some numbers released by the FinTech Association, you know, at least the top companies have made loss of 25,000 crores. So, it's a business where they have really burnt money. There is a cost involved in setting up this infrastructure, right? So somebody in the system has to pay up and who will be that person but is it the consumer? Who is doing these transactions for free? Are These banks? Are these you know, FinTech companies who are just subsidizing payments and using the data for some other business unless and until it's decided who is going to bear this fee. This FinTech companies specifically operating in the payment space will never make money.

Anupriya Bahadur 10:55  

Saloni Never say never. That's exactly what the RBI is trying to do, at this point, navigate stakeholders in this new digital economy. But will micromanaging charges work? Or will it be best left to determined by the market forces. But let's get in a veteran banker and ex SBI chairman and the chairman for Bharatpe. Rajnish Kumar is here with us, sir, thank you so much for joining us here on the morning brief and Saloni Shukla continues on in this conversation with us as well. So I want to start up first to the heart of the issue of the payments and potentially free UPI. We've seen 67 lakh crores worth of transactions just in this year. And that's what the UPS boasting of now we're putting a tag of a digital public good is the cost too high to keep that tag and even keep it growing to a global scale at this point,

Rajnish Kumar 11:44  

No, One is that we should be very proud of what we have achieved so far. And as you may be knowing that globally, India is number one, as far as the digital payments are concerned, the number of transactions which are happening on UPI platform, they are averaging about 20 crore per day, which is about 7000 Crore transaction per annum. And when you have those kind of volumes, one, it requires a lot of investment in infrastructure, there are issues about how to protect the system against any data theft or cyber security angle, there are customer grievance redressal mechanisms. So there is a cost associated to it and add these kinds of volumes, my view and it is my personal view that even one rupee per transaction, we'll achieve the objective of making it a sort of a breakeven proposal because if you generate the revenue of 7000 crores, 18% can go to the government and will go to the government by way of GST. That leaves about 6000 crores. And that is what the cost has been estimated. So this is a very simplistic solution, it doesn't hurt consumer, because it's not a big fee every one, maybe like on an average people would be doing five, six transactions, maybe at least I do five or six transactions on UPI every month. So paying five or six rupees for the great convenience, in a month, which UPI offers, I think we can create a win win situation government rather than doing any budgetary provisions can be a net gainer consumers, I doubt they would mind it. In fact, it can be pilot tested also. So all those costs can be recovered. But as I said, this is my personal view, that's what I feel is a solution.

Saloni Shukla 13:50  

Sir since we're talking about views, you know, at least the government seems to be pretty adamant that if you charge digital payments, then the growth will slow down. But Sir from somebody who's, you know, who's run the largest bank, and you know, you had plans at that point of time with YONO and I, I remember that there was an internal balance sheet of YUNO which was created and it was a profitable entity. YUNO was a profitable entity within SBI. So then how are you making money Sir?

Rajnish Kumar 14:22  

ultimately, government is a very important stakeholder, we have to realize that. And the government has pushed digital current government in a very big way, and which is very good for the economy, because it does improve the efficiency of the economy. And it is not only about the payment system, but even if you look at the delivery of all the public services through digital India has done wonderfully well. And the digital infrastructure has also been created under a public private partnership model. So it's a matter as I said to be tested So, there may be like this assumption that if a fee is levied, it may lead to slowdown of the digital payments. So as I said that there can be a pilot test also. These are the decisions you can implement it then even change it also there's nothing sacrosanct about it. But if government takes the view that no, it is not negotiable, then nobody even RBA wouldn't be able to do anything about it. Because government's view will prevail. I'm very clear on that. There is no second thought and about like making money, how do you make money? Oh, well, what the thinking is that you make money through cross sell or other products once you have database and then the only option left is that you make money through lending and lending to the merchants. And particularly the lending product is where they can get margins to cover all the costs but, I think this type of cross subsidization in the long term, it is not sustainable, the system cannot lose five 6000 crore rupees every year and depend upon other products. 

Anupriya Bahadur 16:17  

I want to bring in the angle of parity as well. You know, we've talked about this the RBI writes about in the discussion paper as well between RTGS and NEFT where the RBI has provided the infrastructure and the platform, and it doesn't charge the banks, will that argument suffice for UPI, as well, if there is now a parity across payment and platforms.

Rajnish Kumar 16:36  

If RBI wants to recover, again, their cost on that infrastructure. So for RBI, it is easier in the sense that at least for RTGS, these are all used by corporates or businesses. NEFT is, again is a retail payment system. So if there's a charge, at least if there is a charge by NPCI, or RBI banks should be allowed to recover it from the customer. Those charges because they're sort of service charges which bank are paying, and why should they be out of pocket. So best way to price in my view is that it should be market determined. And with whatever the banks are required to pay to RBI or NPCI, that becomes the floor. The way to price this project would be market determined with a cap, you put a cap if you want to protect the end consumers.

Saloni Shukla 17:33  

Historically, you know, you're saying we've seen RBI never sort of interferes in determining interest rates or any other fees or commissions, which bank charges what I'm trying to understand from you is that is this intervention from RBI required, you know, that it decides what you know, our payment system stakeholder has to charge

Rajnish Kumar 17:57  

As far this payment system in the country is concerned, just sound a secure and stable payment system, that has always been the responsibility of RBI protecting the consumers that is also as far as any banking related services is concerned, any service being provided by the regulated entities like banks, to protecting the consumers also would fall in the domain of RBI there is no other regulator who can do it or government can do it as they have done in case of UPI. So there is nothing wrong, okay, where RBI wants to do a consultation and come out with some schedule of charges when it comes to the retail consumers in particular. But when you say MDR is zero on debit card, so maybe a small merchant, as I was mentioning, say, a vegetable vendor or fruit vendors or a small shopkeeper benefit, but we are also subsidizing likes of Amazon. They are also merchants. So it is a like subsidization by the banks or ecosystem players of likes of Amazon. So should we do that?

Anupriya Bahadur 19:15  

You've seen both angles of, youve seen the traditional banking system? Youre now, Chairman, for Bharatpe as well, I just want to get your final view on the matter, which is, will this lack of revenue roadmap right now? Will that be more detrimental to growth in payments rather than a minor payment for customers? Because as Saloni was also previously saying that that's the trade off being made right now.

Rajnish Kumar 19:38  

Nobody is going to stop that is a fact that you have to provide a service to the customer. So even if it is a loss making proposition nobody has said that I will not provide this service and you can't afford to say that. But it can hamper innovation for sure. Even in case of rupay card Simple example MDR is zero, but it has not benefited in any manner. Because when you go to the merchant has any merchant told you that if you use rupay card, I will give you a discount of one and a half percent because half percent because I'm not paying MDR. So, the system requires investment for sure continuous investment. If there are players who want to come in, banks don't have a choice, let me tell you, because they own the customers account. And they have to provide all the banking services including payment services, but the companies like FinTech companies or the companies who can bring a lot of innovation, they will definitely think through that what is in for them and or how do they generate revenue. And if there is a business model where you can generate revenue then you absorb these costs.

Anupriya Bahadur 21:02  

Undoubtedly, a road to monetization is needed to keep India's digital economy on its dream run. But when and how much that remains key. We get a bankers perspective. Digital champion Akhil Handa Chief Digital Officer at Bank of Baroda joins us Akhil thank you so much.

Akhil Handa 21:17  

Thank you for having me.

Anupriya Bahadur 21:19  

Akhil the government has made their stance very clear at this point that UPI will not be charged fintechs are not fully happy. But is this really a full stop? Or do you feel this has more to do with timing at this at this stage?

Akhil Handa 21:32  

I can't comment about the legislative action in the government and its infinite wisdom has taken a call. I'm sure there are very good reasons for it. But you know, a commercial perspective, just putting on a commercial bankers lens. I think that every payment system has three stages, right? The first is, you know, when you need a lot of adoption. The second is, you know, when you get a little mature, plateau. And the third is a decline phase. In most parts, we feel that the first is where you need a lot of support, encouragement, awareness, to be able to build up and take the new payment rails to the market drive adoption. And I think the government has rightfully done. So when it comes to UPI. In 2016. When the person to merchant payments MDR was dropped down to zero. I think the merchants also then realized that look, there's no cost to taking UPI payment. So I think overall, it's been a huge success. And now, you know, we have to just validate as to what phase are we in? Are we looking at the growth phase? Are we in the Plateau stage? And then we can appropriately take a call because you will have to make this commercial at some point,

Anupriya Bahadur 22:50  

at some point is what point and that is the next stage of the debate? And in what manner? Will you have to meet commercial Akhil, you've seen the 40 questions put out by the RBI. In your opinion from a bankers perspective, where you know, you're shouldering with fintechs in this ecosystem, what should this model really look like?

Akhil Handa 23:10  

There are a lot of considerations, right. What I do know is that there are about, you know, I would say about 30 to 40-30-35 crore, active UPI users now, is it good enough in the country? Or would you like to bring in the next 30 crore, the next wave of the users has to also be encouraged to come in. And, quite frankly, they're not just coming in because of zero MDR. But now you're running into some very basic considerations like affordability, availability of a smartphone to make a UPI payment, education, awareness, the zero MDR provides the necessary signaling effect and encouragement. But I don't think it is a determining factor anymore in the next wave that we're looking at.

Anupriya Bahadur 24:04  

So to understand Akhil, in order for the next wave to happen of adoption of FinTech growth and fintechs and banks to develop, what is the next step if you don't have a monetizing roadmap? Do you think evolution and innovation will be hampered?

Akhil Handa 24:21  

So innovation needs commercial model? Right? And we cannot run the dry pipes forever? Because ultimately, there's a huge ecosystem and that needs to move and the question I think, is who is going to pay up right? If it is not going to be the consumer and the merchant, then somebody else has to pay now will it be the banks or will it be the government? Now I think beyond a point the ability of the banks to also foot the bill of running such huge volumes of payment is kind of challenged. So we will have to have find another pocket, and government obviously has far more resources compared to any individual commercial organization. And if the objective is to create a digital footprint in a shorter order of time, then I do believe that it is a shared responsibility between the multiple stakeholders.

Anupriya Bahadur 25:23  

fintechs are faced with an economic model best described as aamdhani athanni kharcha ruppiah but the verdict or rather the view from the stakeholders providing the payment ecosystem is very clear. Show me the money or share the cost more effectively. The freebie status on UPI risks fizzling the trillion dollar ambition of India's digital economy or at least adding a detour slowing it down. Idea innovation aside without a valuable revenue model, many booming payment businesses will now have to go back to the boardroom. From Mint Street to the Ministry of north block at this stage. There are many questions, multiple stakeholders, but it all comes down to monetization. I'm your host Anupriya and you've been listening to the digital divide. Who should pay for payments on the morning brief. We leave you will not the sound of music but the sound of money as you head into the weekend data sonification that can base the growth of UPI. Thanks for tuning in.

Anupriya Bahadur 26:32  

This episode was produced by Vinay Joshi from the economic times and Swati Joshi from awaaz Sound Editors, Indranil Bhattacharjee from economic times and Soundarya Jayachandra from Aawaz executive producers, Arijit Barman and yours truly, if you like this episode, make sure you share it on your social media. You can tune into the morning brief every Tuesday, Thursday and Friday. Tune into et play our latest platform for all our audio content, including the morning brief

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