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The major difference between UPI payments and Credit Cards is that there is no 'surcharge'. This is what makes it very viable for small merchants to accept paym

The major difference between UPI payments and Credit Cards is that there is no 'surcharge'. This is what makes it very viable for small merchants to accept payments of minimal amounts.

wtmt 3y ago
This is why banks have never been happy with UPI because their costs to support aren’t fully recovered and it’s a drain. They’ve supported it mainly because of the government pushing them to. MDR (the charges the merchants pay) started coming to UPI too, a few months ago. The “free” party won’t last a lot longer.
- vinay_ys 3y ago
  UPI payments to merchants have had MDR for a while now. And there is a government fund to compensate banks as well. Cost on its own isn't the real reason for banks to be unhappy. Banks were unhappy because they were not used to this kind of pace of feature growth and user growth. It put operational stress on their teams and their relatively old systems (much newer than western banks). They also saw it as a zero-sum game where UPI had opportunity cost w.r.t growth/profit in credit cards. But the reality is somewhat different. Affluent class still uses credit cards (for loyalty points, irony!) and cards market has grown quite well too. And as digital usage expands and banks have embraced digital, they see UPI as an engagement driver and they make money on selling other financial products including credit cards and loans. Anyone who isn't thinking this way will be killed by competition soon enough.
perfopt 3y ago
This is exactly why banks are unhappy - they have to bear the infra cost. This is also the reason the government is trying to push UPI wallet. I suspect at some future point UPI (non-wallet) transactions will be charged a small fee and wallet transactions will not.
- blackoil 3y ago
  Banks are in general happy as any cost is offset by reduction in cash handling cot. ATMs installation and maintenance are costly, branches even more so, you can reduce that. Also, for the merchants, cash handling cost is greater than 0. > I suspect at some future point UPI (non-wallet) transactions will be charged a small fee and wallet transactions will not. Right now, it is other way round. Wallet transactions above ₹2000 attract some fees for merchants.
saurik 3y ago
This also massively changes the incentive structures as it becomes yet another "you are the product" service :(. https://scroll.in/article/1045536/are-your-upi-payments-farming-your-personal-data-without-your-consent https://scroll.in/article/1045536/are-your-upi-payments-farm... (note: these paragraphs are not juxtaposed) > “All these parties get a slice of the transaction data,” Lakhsmanan said. “This is built into the UPI system, which works on the model of ‘data maximisation’ – collecting and sharing as much data as possible.” > The amount of data shared on the digital spending habits of consumers is significantly more in UPI as compared to traditional forms of digital transactions. “In a card payment system, such as credit cards, there are fewer parties,” Lakshmanan explained. “Further, the data stored is not identifiable, since it stores credit card numbers, that too in a redacted fashion.” > But since this is not happening, companies may have to resort to other ways to make money. Said Jonnalagadda, “The lack of merchant discount rate [charges for processing debit and credit card payments] is a disincentive to all middle parties in the transaction – banks and apps, so they are forced to cope by upselling other services or collecting data and looking for data monetisation opportunities.”

The major difference between UPI payments and Credit Cards is that there is no 'surcharge'. This is what makes it very viable for small merchants to accept payments of minimal amounts.

wtmt 3y ago

This is why banks have never been happy with UPI because their costs to support aren’t fully recovered and it’s a drain. They’ve supported it mainly because of the government pushing them to. MDR (the charges the merchants pay) started coming to UPI too, a few months ago. The “free” party won’t last a lot longer.

vinay_ys 3y ago
UPI payments to merchants have had MDR for a while now. And there is a government fund to compensate banks as well. Cost on its own isn't the real reason for banks to be unhappy. Banks were unhappy because they were not used to this kind of pace of feature growth and user growth. It put operational stress on their teams and their relatively old systems (much newer than western banks). They also saw it as a zero-sum game where UPI had opportunity cost w.r.t growth/profit in credit cards. But the reality is somewhat different. Affluent class still uses credit cards (for loyalty points, irony!) and cards market has grown quite well too. And as digital usage expands and banks have embraced digital, they see UPI as an engagement driver and they make money on selling other financial products including credit cards and loans. Anyone who isn't thinking this way will be killed by competition soon enough.

perfopt 3y ago

This is exactly why banks are unhappy - they have to bear the infra cost. This is also the reason the government is trying to push UPI wallet. I suspect at some future point UPI (non-wallet) transactions will be charged a small fee and wallet transactions will not.

blackoil 3y ago
Banks are in general happy as any cost is offset by reduction in cash handling cot. ATMs installation and maintenance are costly, branches even more so, you can reduce that. Also, for the merchants, cash handling cost is greater than 0. > I suspect at some future point UPI (non-wallet) transactions will be charged a small fee and wallet transactions will not. Right now, it is other way round. Wallet transactions above ₹2000 attract some fees for merchants.

saurik 3y ago

This also massively changes the incentive structures as it becomes yet another "you are the product" service :(. https://scroll.in/article/1045536/are-your-upi-payments-farming-your-personal-data-without-your-consent https://scroll.in/article/1045536/are-your-upi-payments-farm... (note: these paragraphs are not juxtaposed) > “All these parties get a slice of the transaction data,” Lakhsmanan said. “This is built into the UPI system, which works on the model of ‘data maximisation’ – collecting and sharing as much data as possible.” > The amount of data shared on the digital spending habits of consumers is significantly more in UPI as compared to traditional forms of digital transactions. “In a card payment system, such as credit cards, there are fewer parties,” Lakshmanan explained. “Further, the data stored is not identifiable, since it stores credit card numbers, that too in a redacted fashion.” > But since this is not happening, companies may have to resort to other ways to make money. Said Jonnalagadda, “The lack of merchant discount rate [charges for processing debit and credit card payments] is a disincentive to all middle parties in the transaction – banks and apps, so they are forced to cope by upselling other services or collecting data and looking for data monetisation opportunities.”