The National Payments Corporation of India (NPCI) has imposed an interbank fee on Unified Payment Interface (UPI) transactions in excess of Rs 2,000 made through Prepaid Payment Instruments (PPI). The move would aim to boost revenue for banks and payment service providers that are struggling with high UPI transaction costs. Fees will be collected from April 1st and the market valuation will be verified by September 30th, 2023.
What does that mean in simple terms? Some key results
- UPI payments made through PPI – Read digital wallets like Paytm Wallet – will now attract 1.1% fee if transaction value is Rs 2,000 or more.
- Wallet transactions below Rs 2,000 are not subject to these fees.
- The commission is collected by the dealer. This means retailers can choose to pass the price premium on to consumers or not.
- Normal UPI operations, that performed directly from account to account remain free.
UPI is right now the liked and generally involved installment framework in India which permits clients to immediately move cash between ledgers utilizing their cell phones On the other hand, PPIs are digital wallets that allow users to store money and make payments. There are several PPIs in India including Paytm, PhonePe and Google Pay.
Interbank fee is a fee charged by one bank to another for processing a transaction. In the case of a Unified Payment Interface transaction, the interbank fee is paid by the merchant’s bank (the person or company receiving the payment) to the payer’s bank (the person making the payment).
Explaining the new fees, the NPCI — the body that governs and administers the UPI system — said: (Recently) the NPCI allowed PPI wallets to be part of UP’s interoperable ecosystem. The interchange fees introduced apply only to commercial PPI transactions and will not be charged to customers, and it is further clarified that there are no bank account fees for bank account-based UPI payments
To be clear, does this mean users will be billed for UPI transactions?The answer is no. Users are unlikely to add additional fees to their transactions, which they do in most cases. Only businesses accepting payments utilising prepaid (PPI) payment instruments like mobile wallets over Rs 2,000 would be subject to the new Unified Payment Interface transaction costs.. No additional fees are charged to individual users who conduct face-to-face transactions using UPI.
Currently, most Unified Payment Interface transactions are small amounts. The NPCI believes that by inducing PPI providers to encourage higher value UPI transactions, the average value of Unified Payment Interface transactions can be increased and the overall cost of payment systems in India reduced.
The Council on Payments and Market Infrastructures and the World Bank both advocate an interchange cost of up to 1.15% for UPI transactions, therefore the NPCI claims that the proposed interchange fee is in line with their guidelines.