Payments Neutrality & Discrimination scene in payments

Given a lot of action around payments and UPI turf wars like that of PhonePe-ICICI and calls for “payment neutrality law” have been made by IAMAI, PCI and more recently, TRAI Chairman RS Sharma sought the same in his opinion column titled Conditions for cashless India, it is important to understand the discrimination scene in payments, various actors, point of views. I will try to document them with my understanding of the scene, in an attempt for us to properly visualize what discrimination exists between them, before even trying to define payments neutrality.

Banks : They are the oldest people in the room with near-monopolized access to currency, trust custodian of the society and hence inherent dominant players in payments. Having inherited near-monopolized access by a grandfather, in some cases leading to special privileges in policy recommendations like Grandfather clause, banks are a very strong force in payments industry.

Settlement Agencies : Banks found that they could be operationally more efficient if they commonly agree on a single person to do settlement, hence formed agencies (like NPCI) and in some sense such agencies, can be called as collective trust custodian of banks for managing shared payment infrastructure, also inheriting access privileges to central banking (and regulators, government) through bankers.

Card Networks : Card networks are pioneers in retail digital payments. They have worked together with banks and settlement agencies, hence share a lot of privilege which they have earned over decades by being in the field.

eWallets, Payment Service Providers : eWallets and (UPI) Payment Service Providers are relatively newer entrants to payments scene offering modern digital payments options to their customers through mobile and internet, making crucial digital payments infrastructure more accessible and user-friendly.

Payment Banks :  Mushrooming participants in the payments ecosystem known as Payments Bank, whose function would be to perform limited banking functions, provide payments as service but are restricted by design to lend money.

Coop Banks : These are “small banks” which serve a more local purpose, either geographically or demographically. Mostly, they piggyback on a larger bank for their payments operations.

Merchants (Payee) : Anyone who receives payments for business / commercial purpose.

Consumers (Payer) : Anyone who pays for product / service.

Financial / Digitally Excluded : Anyone who does not prefer to use digital payments, by choice / doesn’t use digital payments by virtue of not having access [financial infrastructure, education(literacy, financial literacy, digital literacy), physical infrastructure].

Lets try to list all the discrimination that happen in the ecosystem. This would mostly be incomplete, please comment on any discrimination that is missed out.

  • Banks, Settlement agencies and card networks discriminate against pretty much everyone else below them on variety of factors. They also actively discriminate amidst each other.
    • Banks discriminate their customers (pretty much everyone in value chain) based on volume of business, powers they hold, risk profile, etc. This is the reason for the existence of
      • differential MDR for PoS machine that is set at merchant account level
      • different category of customer accounts, privileges, rewards, differential interest rates for EMIs for various ticket sizes, merchants and categories.
    • A bank run settlement agency (NPCI) discriminates against non-banks in allowing access to payments infrastructure (UPI) it runs.
    • A bank run settlement agency (NPCI), also has its own card network (RuPay) which competes with other networks. Are we to believe it doesn’t discriminate? Read : The invisible mandate and fair play in card games
    • Card networks along with banks, discriminate their customers with credit capabilities and spending patterns, offering differential pricing for credit they access through cards, not to mention the discrimination in loyalty scheme.
    • Banks get discriminated by govt, regulators for having higher standards of compliance compared to eWallets.
  • Any payments service provider (Banks, Cards, eWallets, PSPs) discriminate their own customers based on their occupation / need for payments (Merchant accounts, customer accounts) and price them very differently (MDR, service levels) for essentially a product/service that would cost identical, irrespective of the entity involved in the transaction.
    • Partly because they inherit costs from their access layer (Banks), but none of the pricing models seem to be any different from banks. Why should eWallet provider / Payment Processor charge a flat % fee to a merchant and why not a charge a fixed fee and transfer cost of access directly?
    • Non-Bank payment providers get discriminated by regulations making it tough for them to compete in a fair manner.
  • Merchants offer differential benefits to customer based on choice of payment instrument. This again can be called inheritance (of using banks, cards, PSPs who price it in discriminatory fashion), but merchants again discriminate on pricing to their customers based on ticket sizes / volumes / cost of payments.
    • Why should one get “cashback” / extra discounts for paying through eWallets as opposed to cards?
    • Why should a crowdfunding site for charity site charge 10% of charity money as cost of overheads
    • Merchants get discriminated by govt, banking / payment entities through high tax rates, cost of business etc.
  • Then there are people, who discriminate openly, subtly, casually with each other by refusing to accept / provide cash, non-digital payments, digital payments for their own reasons including convenience, sometimes without consideration to other person’s access, choice.
    • A person might use app-taxis and pay only digitally, even after hearing the driver pleading and sharing his troubles of settlement issues / delayed payments and his daily currency crunch (much before demonetisation).
    • Digitally paying consumer gets discriminated from merchants every time someone asks 2% extra.

Now payments discrimination also happens on purpose (investment, credit), source(forex, B2C, G2C), size (value & volume of transactions) and various other tangential / additional factors when it comes to payments.

Yes, everyone discriminates everyone else in this world. Defining payment neutrality should be based on consistent set of values across the hierarchy, not one dimensional discrimination and must be agnostic of entity involved in payments. It is important for all stakeholders in payments (pretty much everyone of us) to sit across and talk openly about discrimination, fears, develop (regain) trust among each other and agree on the consistent core values before trying to define payments neutrality.

PS : I started off writing this as “Casteism in Digital Payments”, but discontinued the analogy because one form of discrimination cannot be compared with another, even though there might be seemingly lot of points to draw parallels. Such drawing of parallels would be an unjust, insensitive comparison. Discrimination also comes in all forms of size, shape, color, caste, race, gender, what-not hence visualizing one through another restricts our ability to view the scene beyond the prism.

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