Discuss the pros and cons of the free-UPI MODEL.

Recently, the government and the payment industry stakeholders have been locking horns with one another regarding charging a minimum amount for digital payments mainly concerning with UPI payments. The banks, payment apps and payment infrastructure providers are strongly demanding to impose charges on the UPI payments.

However, the finance ministry has reiterated that UPI is a digital public good and hence will likely remain a free of charge product.

This has sparked a debate around continuing UPI model as a digital public good.

Pros of free UPI model:

• UPI has been a tremendously successful in enabling digitalization of India’s payment economy.
• UPI being an indigenous ‘made in India’ product, has helped India find its unique place in the globe in the digital payments arena.
• Government fears that adding a minimum charge like credit cards will hamper the growth in the digitisation of economy.

Cons of free UPI model:

• The current free UPI model acts as a burden on payment industry as the cost of investments in infrastructure don’t recover.
• The absence of profit in UPI-based payments has hampered the upgradation of payment infrastructure, which is a reason for high transaction failure rates of UPI.
• Only the banks or refunded their costs, the payment apps and infrastructure providers often left to fend for themselves.
• All the players involved in the UPI ecosystem needs to be incentivised for sustainable growth.

The UPI has definitely helped to formalise and digitise the economy, hence, its infrastructure needs to be upgraded at right times. Also, even if it is considered as a public good, it does not come at a zero cost as the cost is indirectly paid in the form of taxes.