The National Payments Corporation of India (NPCI) notified in a circular recently that an interchange fee of 0.5% to 1.1% will be applicable on transactions over Rs 2,000 made through Prepaid Payment Instruments (PPIs). This fee on digital wallet transactions made on the Unified Payments Interface (UPI) will come into effect from 1 April this year and will depend on the type of service provided. For instance, 0.5% will be charged on fuel-related payments, 0.7% for telecom, utilities/post office, education and agriculture transactions, and 1% for court costs, tax payments, and insurance sales.
But you don’t need to worry
To break it down, PPIs are digital wallets that allow users to store money and make payments, such as Google Pay, PhonePe and Paytm, three of the most popular apps for UPI transactions. From 1 April, whenever they will be used to make a UPI transaction, the interchange fee will be 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). The PPI issuer will pay the remitter bank approximately 15 basis points as a wallet-loading service charge. However, as this fee will be levied on the merchant side, they may or may not pass it on to the consumers.
As of now, most of the PPIs are reluctant to do so, mostly as the bulk of transactions through these apps are usually below Rs 2,000. Also, charging a fee from the customers may lead them to lose their clients who could switch to a rival company that may be willing to absorb the extra charge rather than have the client pay for it. Paytm has already tweeted that no customer will pay any charge.
Also, regular UPI payments like those made from one bank account to another are exempt from this charge, which the NPCI claims makes for 99.9% of total UPI transactions. There are about 25 crore unique users and 5 crore merchants on the UPI platform. In February this year, the UPI processed 753.4 crore transactions, amounting to Rs 12.35 lakh crore. The NPCI, which runs the UPI system, stated that the move was to improve interoperability under the UPI and increase revenue for banks and payment service providers. This pricing will be reviewed by 30 September 2023.