Federal Bank proposes nominal fee for specific UPI transactions
“Banks are heavily investing in technology for a seamless UPI user experience. Federal Bank suggests the government consider a nominal fee on specific UPI transactions to allow lenders to generate income from these low-ticket transactions,” stated Shalini Warrier, Executive Director at Federal Bank.
“We appreciate the government’s incentive for UPI payments, especially for person-to-merchant transactions. However, considering the ecosystem’s need for direct income, authorities should contemplate a nominal charge. Many members have sought the ability to collect fees, and we hope the government will reassess and permit charges for specific transaction categories,” stated Shalini Warrier, Executive Director at Federal Bank.
Shalini Warrier mentioned that Federal Bank experienced a 25% growth in overall UPI volume over the past year, increasing from 122.97 million in December 2022 to 164.71 million in November 2023.
Federal Bank manages almost 300,000 active UPI Lite accounts, designed for transactions below Rs 500. The bank records an average daily transaction volume of approximately 1.7 million. Shalini Warrier noted that UPI Lite, although a relatively recent concept, is gradually gaining traction among customers.
Shalini Warrier mentioned that the bank has successfully integrated UPI with RuPay credit cards, and the initial response to this new product is positive. She stated, “With our existing base of RuPay credit cards, we are handling nearly 70,000 transactions per month, amounting to volumes close to Rs 4 crore. As we continue to expand the volume of credit cards, we anticipate a significant increase in these numbers.”
Bank-fintech collaboration
The rise in risk weight on unsecured credit by the Reserve Bank of India is not expected to significantly affect Federal Bank, given its lower exposure to such loan categories, as stated by Warrier. Nonetheless, acknowledging the increased cost of capital with higher risk weights, the bank has made “appropriate adjustments” to the pricing of both credit cards and personal loans.
Based on the select provisional Q3FY24 figures submitted by the bank to the exchanges, as of December 31, Federal Bank’s total loan book reached Rs 2.02 trillion, reflecting an 18% year-on-year (YoY) increase. Retail loans constituted 55% of the overall book, experiencing a 20% YoY growth, while wholesale advances comprised 45% of the total loans, growing by 17% during Q3.
“In the current scenario, any fintech aiming to collaborate with BFSI players must allocate resources for regulatory compliance, cybersecurity, and data protection, apart from investments in customer platforms and other technological infrastructure,” Warrier stated. She further noted that not every fintech with innovative ideas can invest in these core competencies, as venture capital-backed funds are not readily available, and such investments are continuous in nature.