India’s National Payments Corporation (NPCI) has announced that using Prepaid Payment Instruments (PPIs) for transactions through UPI will attract an interchange fee. This charge will be levied if the transaction is more than ₹ 2,000. NPCI has also notified that an interchange fee of up to 1.1 per cent will be applicable on merchant UPI transactions from April 1.
The interchange fee varies for different categories of merchants, ranging from 0.5% to 1.1%. A cap is also applicable in certain categories. The introduced fee is only applicable for merchant transactions made through prepaid payment instruments, and NPCI has clarified that no charges will be levied on normal UPI payments, which it terms as “bank account-to-bank account-based UPI payments.”
PPIs include mobile wallets and prepaid cards, and these are often used for small transactions like purchasing groceries, booking movie tickets, or paying utility bills. In contrast, UPI is a real-time payment system that enables transactions between two bank accounts through a mobile device.
The introduction of the interchange fee on UPI transactions has sparked concerns among consumers and businesses alike. Some industry experts fear that this fee will increase the cost of digital payments and discourage small-value transactions, which form a significant portion of UPI transactions.
The NPCI has defended its decision by stating that the interchange fee is necessary to ensure the sustainability of the UPI ecosystem. The NPCI also noted that it has not revised the UPI pricing structure since its launch in 2016 and that the new fees are necessary to fund future development and maintenance costs.
Despite the NPCI’s reasoning, the announcement of the interchange fee has caused confusion among consumers and businesses. It is unclear how the fee will impact the adoption of digital payments and whether it will result in increased costs for consumers.
In conclusion, the introduction of the interchange fee on UPI transactions is a significant development in India’s digital payments ecosystem. While it is intended to fund future development and maintenance costs, it remains to be seen how this fee will impact the adoption of digital payments and whether it will increase costs for consumers.