Is UPI & RuPay sustainable?

So seeing this news brought back a worry that I always had… Is UPI & RuPay sustainable?

The reason is that Visa and Mastercard charge a lot of money as transaction fees and make a revenue/profit out of which they run their business.

But UPI and RuPay do not charge as much fees are not that much of a sustainable business, at least not in it’s current form. Especially as PhonePe, Google Pay & Paytm don’t make money out of UPI. They are spending their own money.

Yes. UPI & RuPay charge MDR for transactions above Rs.2000. But the majority of transactions are below Rs.200 and that’s the reason UPI Lite limit was set to Rs.200 before and maybe it’s increasing to Rs.500. But the majority of transactions are nowhere near Rs.2000.

Doesn’t UPI and RuPay need a lot of servers/infrastructure to support the increasing transactions?

Maybe some revolutionary business model is waiting to be found, maybe the MDR will increase.

Do you think that UPI and RuPay will survive?

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UPI is classified as a public service category. I don’t remember where did I read it but it was mentioned when there was a confusion around an announcement around the fees that have to be paid when paying from a wallet. Hence, UPI will sustain.

Rupay is being pushed as an alternative to Visa and Mastercard. Without the no MDR mandate and whip from the RBI event the PSBs were not issuing Rupay variants. Hence, it is the full backing of the government until it has captured the right market share.

Until then, we the consumers; get enjoy the perks of freebies and innovation. And once we have been hooked, bham !! It will all be taken away.

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Yes. I also remember reading this in the news.

My worry is that when the government takes it’s hands off UPI and the private companies take over… If they start charging for the UPI services, people will be in a for a shock and there is a possibility that whatever progress was made in digital payments may be erased and people may go back to cash payments.

I remember sometime back, Kotak started charging for UPI payments above a certain limit and RBI stepped in and told them they can’t do that and told to refund the money to the customers.

So it’s only a matter of time till the banks start charging for the service. They have infrastructure cost at the very least.

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Kotak is infamous for these stunts.

Well, ownership of UPI will remain with NPCI and as long as RBI continues to set the road map for them, we should be good

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In long term Rupay will start starting MDR, there is no doubt about it.
The only question is when? Maybe, after certain years and capturing decent market size. My guess is that even then MDR charges in Rupay will be lower than the Visa & MasterCard.

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There’s no doubt that UPI is sustainable, NPCI is more profitable than many other new age fintech companies.

Source: https://entrackr.com/2023/05/npci-posts-rs-773-cr-profit-in-fy22/

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@saurabh.s My concern is that banks still have to operate their end of infrastructure for UPI to work and they are not making any money as of now.

So NPCI alone making money won’t be enough.

Of course I am not exactly sure how these things work on the backend. If some of our community friends can clarify on that and if there is some scoop on the long term business ideas for UPI, please do share.

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Found this post in the community. Thanks @yagnesh01

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"“If banks and fintechs are investing so much, someone has to bear the cost. If everything is free, how will it work?” he said.

“The point is that an imposition of MDR will take care of the costs as it will delegate them. People won’t stop using UPI as it’s very sticky. Since it has now picked up, it is about bringing it to a level where there are more innovations. The government is also compensating these costs from the taxpayer’s money,” Gandhi said."

"However, the Bernstein note rules out the burden of costs incurred and said that MDR will remain zero for UPI transactions.

“The rationale being that most of the stakeholders have already seen immense benefits (reduced costs or incremental revenue opportunities) that more than compensate the costs that they incur towards facilitating UPI transactions,” it said."

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“The banks which actually enable those payments tend to lose money on those transactions. So it’s a proposition which we are asking the question is this long-term sustainable or not. And who knows? We’ll see where it goes. But in the meantime, debit continues to flourish in that market, as does credit,”

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"Some startup founders claimed that NPCI does not seem to be worried because it is actually making money from UPI. The event saw a slew of launches from NPCI’s partners.

“For NPCI, the main focus is on adding new players to the network who have to pay fees to be part of the network and create solutions on top of UPI,” added a Bengaluru-based neobanking startup cofounder.

In FY22, NPCI logged over INR 720 Cr in net profit, whereas fintech startups are still struggling to break even. Is UPI becoming a burden rather than an enabler?"

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The other side of going cashless… :slightly_frowning_face:

"This has stirred the hornet’s nest, with around 15-20 percent of merchants, both small and big, requesting their banks to disable payments using Rupay credit card on UPI, according to multiple merchant-acquiring banks and UPI apps. There are an estimated 70 million merchants using the UPI platform.

This is owing to the higher commission, or merchant discount rate (MDR), which merchants have to pay their banks for UPI payments made using Rupay credit cards.

On a typical credit card, a merchant typically pays around 2 percent MDR, or Rs 20 on a Rs 1,000 transaction. Of this, 1.5 percent, or Rs 15, which is called the interchange, goes to the card-issuing bank, and 0.5 percent goes to the merchant acquiring-bank and card networks.

According to a couple of banks and UPI apps, sports goods retailer Decathlon, train ticket booking platform IRCTC, food retailer Pizza Hut, ecommerce app Jiomart, telecom player Vodafone-Idea, logistics firm Delhivery, and dairy behemoth Mother Dairy, are among those who do not accept Rupay credit card payments through UPI."

Another issue…
Adding to the existing discussion going on this community

@razack same pinch… :wink: