Large merchants should pay for UPI

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Editor's note: On 17 August, the Reserve Bank of India issued a discussion paper where it sought feedback from stakeholders on whether charges on the Unified Payments Interface can be reintroduced. This was immediately followed by a statement from the finance ministry stating that the government for now is not planning any proposal to reintroduce any charges on the popular digital payments platform after some backlash on social media. Since January of 2020, banks and payment operators have borne the cost of UPI while the service has been kept free for merchants and customers. In this period, UPI adoption has grown leaps and bounds. It has become nearly ubiquitous in urban India as the primary instrument to make small ticket payments for millions of Indians.  But UPI involves real-time exchange of information between up to five different parties to authenticate and process simultaneous batches of payments. To do this, banks need to invest in server capacity, or run the risk of frequent outages. I have highlighted the fallout of UPI’s economic model on banks in an earlier edition of this newsletter. Banks …