It is reported that the rates for UPI transactions in the country will start from April 1. The National Payments Corporation of India (NPCI) has recommended an interchange fee for Unified Payment Interface (UPI) transactions above Rs 2,000 through Prepaid Payment Instruments (PPI).
NPCI has proposed an interchange fee of up to 1.1 percent. The move is aimed at boosting revenue for banks and payment service providers, which have been struggling with the high cost of UPI transactions. Interchange rates will be reviewed by September 30, 2023.
UPI is a payment system that allows instant transfer of money between bank accounts using mobile phones. Many Indians use various UPI services for their daily needs. UPI is currently the most popular and widely used money transfer system in India.
PPIs are digital wallets that allow users to store money and make payments. Paytm, PhonePay, GooglePay etc are all PPIs. Transactions above Rs 2,000 through these PPIs will be charged. But consumers will not have to face the impact of NPCI’s new order.
Because interchange fee is the fee charged by one bank to another bank for processing a transaction. In case of UPI transactions the bank of the person receiving the payment or the business entity pays the interchange fee to the bank of the payer. So there is no loss to the users.
No additional fees will be charged to individuals doing personal transactions using UPI. The new fee for UPI transactions will be applicable only to merchants who accept payments above Rs 2,000 using prepaid payment instruments (PPIs) such as mobile wallets.
NPCI says the proposed interchange fee is in line with the recommendations of the Payment and Market Infrastructures Committee and the World Bank, which suggest an interchange fee of up to 1.15 percent for UPI transactions. But NPCI has submitted a recommendation in this regard but the final decision rests with RBI.
This is because the Reserve Bank of India (RBI) regulates the payment systems in India. RBI will take the final decision in this regard. It remains to be seen whether the RBI will accept the NPCI recommendation. If the recommendation is approved, it will have a significant impact on PPI service providers and merchants.
PPI service providers such as Paytm, PhonePay and GooglePay may have to adjust their fee structures to interchange fees and merchants may face higher costs for accepting UPI payments. The circular states that the interchange rates will be reviewed again on September 30, 2023.
While the new fee for UPI transactions is now apparently only applicable to merchants accepting payments above Rs 2,000, some point out that in future the burden of this fee will be passed on to the user. It remains to be seen how traders will react to such a move.