UPI Transactions Over Rs 2,000 To Attract PPI Merchant Charges, Customers Will Remain Unaffected

This charge, which will be applicable from April 1, is only applicable only for PPI merchants and no charge will be levied upon customers

The National Payments Corporation of India (NPCI) has recommended an interchange fee on Unified Payments Interface (UPI) transactions of over Rs 2,000 made via Prepaid Payment Instruments (PPIs). This charge is only applicable only for PPI merchants and no charge will be levied upon customers.

The charges will be applicable from April 1.

The proposed interchange fee is up to 1.1 per cent and the interchange pricing will be reviewed by September 30, 2023. Interchange will not be applied in the case of peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions. PPP issuers will be required to pay 15 basis points (bps) to the remitter bank as a wallet-loading charge for transactions of over Rs 2,000.

Currently, there are no charges on UPI transactions at all, although the UPI ecosystem incurs a cost of Rs 2 for every transaction of Rs 800. This move by the NPCI is aimed at increasing revenue for banks and payment service providers, who have been struggling with the high cost of UPI transactions.

Check the NPCI circular

UPI has emerged as the preferred mode of digital payment by offering free, fast, secure, and seamless experience. The most preferred method of UPI transactions is linking the bank account in any UPI enabled app for making payments which contributes over 99.9 per cent of total UPI transactions. These bank account-to-account transactions continue to remain free for customers and merchants.

The PPI wallets have been permitted to be part of the interoperable UPI ecosystem. In view of this NPCI has now permitted the PPI wallets to be part of the interoperable UPI 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). With this addition to UPI, the customers will have the choice of using any bank accounts, RuPay credit card and prepaid wallets on UPI enabled apps.

What is the interchange fee?

Interchange fee is charged by one bank to another bank for processing a transaction. In the case of UPI transactions, the interchange fee is paid by the bank of the merchant (the person or business receiving the payment) to the bank of the payer (the person making the payment).

According to news reports, the interchange fee ranges between 0.5 per cent and 1.1 per cent. It suggested the lowest interchange fee of 0.5 per cent should be applied to fuel payments, while transactions above Rs 2,000 related to telecom, utilities, post office, education, and agriculture, should attract an interchange fee of 0.7 per cent. For UPI transactions at supermarkets and for mutual funds, government, insurance and railways, the fee should be 0.9 per cent and 1 per cent, respectively.

How the merchants are reacting

Paytm, one of India’s largest digital payments firm, clarified its stance on the interoperability guidelines. In a tweet, the company said that no customer will pay any charges on making payments from UPI either from a bank account or PPI/Paytm Wallet.

Amit Gupta, MD, SAG Infotech, told ABP Live the introduction of interchange falls within the range of 0.5-1.1 per cent. The interchange fee is frequently associated with credit card payments and is levied to cover the costs associated with transaction acceptance, processing, and authorisation. "As a result of the new NPCI wallet interoperability rules, wallet issuers including Paytm, PhonePe, and Google Pay will receive an interchange fee for wallet usage. The wallet issuers will also pay the remitter banks or the bank accounts that the money is debited from for the costs associated with UPI-wallet loading," he said.

Gupta said the MDR for UPI transactions between banks is now zero. As the government has declared that UPI is a 'public utility' and that it does not plan to levy taxes on UPI transactions, MDRs on all UPI merchant (P2M) transactions are unlikely at this time. On the other hand, if wallet issuers decide to pass on the 15 bps interchange required to be paid to remitter banks for loads of more than 2,000, loading wallets for UPI transactions may cost more, he added.

In a statement, Akash Sinha, co-founder and CEO of Cashfree Payments, said, "The NPCI circular announcing the full interoperability of KYC wallets across all UPI merchants is a significant step towards the growth of digital payments in India. The guidelines make wallets more appealing to customers by opening up newer use cases of payments. It will eliminate the need for customers to carry multiple cards, thereby reducing fraud and theft due to the exposure of card numbers. Many merchants use wallets for accepting customer payments, for instance, at PoS. Interoperability will significantly ease collection for them since it will allow merchants to accept wallet payments regardless of the wallet being used by the customer. It will eliminate the need for specific integrations with a particular wallet to accept payments on a website since customers can also pay via UPI or card infrastructure. This will increase the payment alternatives for customers.”