ICICI Bank has come up with a different scheme of payment aggregators (PAs) who conduct Unified Payments Interface (UPI) transactions on the premises of the merchants. This comes into effect on August 1 and will affect such platforms as Google Pay, PhonePe, Mobikwik, and Razorpay.
The payment aggregators serve as a facilitator between the banks and merchants and work on the collection and settlement of payments. As per reports, ICICI Bank has notified PAs that it would collect two basis points on the transaction per month from those customers who maintain an escrow account with the bank. 6. The fee of 4 basis points will be charged to those who do not hold an escrow account at the bank, but no more than Rs. 10 per transaction.
This will be free of charges when UPI payment is directly settled into a merchant ICICI Bank account, and thus the bank stands to gain by providing temporary holding of such funds. Industry leaders feel the step is in line with recent regulatory debates on capitalising on the UPI infrastructure.
Other banks like Yes Bank and Axis Bank, which are in the private sector, impose charges on UPI payments by PAs. The combination of these three banks takes care of a significant percentage of UPI on both sides of the payer and the payee.
According to experts, the high rate of the development of UPI, especially in the peer-to-merchant action, has raised the burden of infrastructure expenses for the banks. As UPI transactions are free of a merchant discount rate (MDR), the banks do not generate much revenue through processing these kinds of transactions. The fees to the PAs will provide an avenue to cover operational costs.
Now, there is also a fee paid by the banks to access the UPI switch. PAs get reimbursement through platform fees, convenience plans, and other charges from merchants, and the customers do not bear direct UPI charges. According to industry sources, PAs may later transmit these new costs to merchants or absorb them, as they have agreements on the same.
When customers make payments via UPI on the merchant platforms, the PA carries out the transaction communication between the customer's bank and the merchant's bank. In a lot of cases, the money will be put in an escrow account under the PA, then given to the merchant. This arrangement provides security in settlement, but now costs may get added up with the new policy of ICICI Bank.
