In a circular dated March 24, National Payments Council of India (NPCI), the governing body of Unified Payments Interface (UPI), announced the introduction of an interchange fee for merchants in case of UPI transactions being done through online wallets. . The latter, which was enabled by NPCI earlier this month in fresh efforts to make all forms of digital payments interoperable in the country, created confusion from users in terms of where to expect to pay transaction fees on UPI.
However, this is incorrect. Here, we look at how the UPI interchange charges will work, who they will affect, and how users may be affected as a result of the new NPCI decision.
What are UPI interchange fees?
The UPI interchange fee is a margin of transaction fee that has been announced by NPCI, which will be applicable from Saturday, April 1. Once implemented, the fee will be applicable only on UPI payments made from digital wallets with a single amount exceeding Rs 2,000. The fee is being levied to ‘interchange’ the payment medium and to support digital wallets on the UPI network.
ranging from fee 0.5 to 0.7 percent in areas such as fuel and utility payments, 0.9 percent in supermarkets and 1.1 percent in convenience stores and retail outlets. In some sectors, such as government utilities, education and agriculture, where UPI payments are made from digital wallets, the interchange fee is also capped. These caps include Rs 5 for railway transactions, Rs 10 for agriculture and government payments, and Rs 15 for education utilities.
Till now, UPI QR codes only supported payments on the UPI framework and could be done directly from bank accounts. With this update, UPI QR code can also be scanned from digital wallets.
Who will be liable to pay these charges?
To be absolutely sure, interchange fees will apply between a merchant (a business that accepts payments) and a wallet (like Paytm or PhonePe). Depending on the category, the merchant will be liable to pay this fee to the wallet operator when a transaction above Rs 2,000 is done through a wallet on UPI and not directly from a bank account.
Does it affect business owners?
Small business owners like local grocery stores will be unaffected as there is no charge for transactions below Rs 2,000. However, for those that accept larger UPI transactions, interchange charges will be applicable if the user decides to make a larger payment from their wallet instead of directly to the bank account.
While this will create a marginal impact on traders, the latter are likely to absorb this impact within their margins rather than passing it on to customers. The latter is an unlikely scenario that will only happen if businesses face a major impact on their merchant discount rates (MDRs) for digital transactions, which is unlikely at the moment.
Will your wallet transactions become more expensive now?
No. As a user, you will not pay anything more than what you are paying now – for making payments from your digital wallet, and for loading money into your wallet. The latter currently has a 15 bps transaction fee for using UPI to transfer money to wallets, which wallet operators will have to pay to the bank for any bank-to-wallet transfer above Rs 2,000. However, most wallet operators are likely to absorb this cost into their margin, and have no impact on customer transactions.
How does this affect your UPI transactions?
The UPI interchange fee has no impact on your normal UPI transactions, which you can continue with as usual. The introduction of interoperability between UPI and wallets means that you can now also use your wallet, such as your Paytm or PhonePe wallet, to make payments by scanning the UPI QR code – adding a new dimension to your online payment options. Adds Capacity.
Can it ever affect your UPI payments?
The central government firmly believes that UPI transactions for users – personal transfers or payments to businesses – will not earn any transaction fee at any point, as UPI has been labeled a ‘public good’. As long as this is true, your direct bank-to-bank UPI transactions will remain free – even if wallet operators and merchants start reducing the impact of these margins on customers at some point in the future.
