In the times when UPI has become one of the most feasible payment options used by people all across the countries, there comes a notification by the National Payments Corporation of India (NPCI) has recommended an interchange fee on Unified Payments Interface (UPI) transactions of over Rs 2,000 made through Prepaid Payment Instruments (PPIs) which is aimed at increasing revenue for banks and payment service providers, who are reportedly been struggling with the high cost of UPI transactions. The fee will be charged from April 1 and the interchange pricing will be reviewed by September 30, 2023. PPIs are digital wallets that allow users to store money and make payments. There are a couple of PPIs in India, including Paytm, PhonePe, and Google Pay. An interchange fee is a fee that is charged by one bank to another bank for processing a transaction.
Some of the key highlights of the notification are:
1- UPI payments made through PPIs — read digital wallets like PayTM wallet — will now attract a 1.1 per cent fee if the value of the transaction is Rs 2000 or more.
2- The wallet transactions that are worth less than Rs 2000 will not attract this charge.
3- The fee will be levied on the merchant side. This means merchants may or may not choose to pass on the extra fee to consumers.
4- Regular UPI transactions, the ones that are made directly from bank account to bank account, remain free.
NCPI while clarifying said that: the NPCI has permitted the PPI wallets to be part of the interoperable UP ecosystem. The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers, and it is further clarified that there are no charges for the bank account to bank account-based UPI payments (i.e. normal UPI payments).” Also, The users are unlikely to see any extra fee added to their transactions, that is in most cases. The new fee on UPI transactions will only apply to merchants who accept payments over Rs 2,000 using prepaid payment instruments (PPIs) such as mobile wallets. Individual users making personal transactions using UPI will not be charged any additional fees.
The initiative has been proposed to align the interchange fee with the recommendations of the Committee on Payments and Market Infrastructures and the World Bank, which suggest an interchange fee of up to 1.15 per cent for UPI transactions.