https://www.thehindubusinessline.com/opinion/editorial/the-upi-nudge/article67627565.ece
Clipped from: https://www.thehindubusinessline.com/opinion/editorial/the-upi-nudge/article67627565.ece
Despite RBI efforts, high-value payments pose problems
In recent times, monetary policy announcements by the Reserve Bank of India have invariably included a regulatory nudge on digital payments. The policy last week saw a proposal to enhance the ceiling on Unified Payments Interface (UPI) from ₹1 lakh to ₹5 lakh for payments made to hospitals and educational institutions. The RBI has already set a ₹5 lakh transaction limit for IPO subscriptions and retail government bond purchases, while capital market transactions and credit card payments are at a ₹2 lakh limit.
All these moves suggest that the RBI is keen to persuade consumers to consider UPI for critical, high-value transactions as well. There could be two reasons for raising the UPI bar for medical and education-related payments. One, a recent RBI research paper looked into why household demand for hard currency is high despite rising digital payments. It found that while households had taken to digital modes for day-to-day transactions, they still liked to hold paper money for precautionary reasons, as for example, to deal with medical emergencies. Enabling hospital payments of up to ₹5 lakh via UPI could persuade households to park these funds in demand deposits with banks, instead of hoarding paper money. While the logic behind this move is sound, it may need other enablers, such as getting insurance companies to recognise UPI payments for co-pay clauses, to hasten the shift. Two, cheque and cash payments are still much in vogue both in hospitals and educational institutions. UPI would be a safer alternative. But while above-board payments may move to UPI, it is moot if under-the-table payoffs such as capitation fees will move to digital modes given their electronic trail.
The RBI may also be keen to transition UPI users into higher value transactions, because this is critical to sustaining the scorching growth in UPI transaction volumes in the last five years. It has experimented with many measures in the last couple of years, including enabling lines of credit and RuPay credit card payments via UPI to improve the UPI transaction mix. But data from NPCI (National Payments Corporation of India) show that such measures are yet to deliver in a big way. Over 72 per cent of the transaction volumes on UPI continued to originate from payments of ₹500 or below in October 2023.
One of the main reasons why users are reluctant to adopt UPI for high-value payments is the high transaction failure rates, with delays in amounts being credited back to one’s bank account. Latest NPCI data showed that some of the top 20 banks declined 2-5 per cent of UPI transactions on their network due to technical reasons. This points to banks not investing in upgrading their back-end infrastructure. The Centre may need to increase financial incentives offered to banks to promote the RuPay-BHIM-UPI ecosystem, from the ₹2,600 crore it set apart for the purpose in FY23.
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