lipped from: https://economictimes.indiatimes.com/wealth/spend/upi-merchant-transactions-ppi-which-upi-payments-will-attract-interchange-fee-will-you-have-to-bear-the-cost/articleshow/99087712.cms
UPI transaction charges: NPCI has advised that UPI transactions made via prepaid instruments, such as wallets and cards will attract an interchange fee of 1.1 per cent for merchant payments from April 1, 2023. The interchange fee will be levied only on specified merchant transactions of above Rs 2,000. Which UPI transactions will attract a fee from April 1, 2023? Will you have to pay a fee while paying via UPI in a store? ET Wealth decodes
The National Payments Corporation of India (NPCI) has suggested that Unified Payments Interface (UPI) transactions made via prepaid instruments, such as wallets will attract an interchange fee of 1.1 per cent for certain merchant payments from April 1, 2023. The 1.1 per cent interchange fee will be levied only on merchant payments of above Rs 2,000 to specified merchant categories, according to a circular by NPCI dated March 24, 2023. However, there will be no fee if the transaction amount is up to Rs 2,000.
Which transactions will attract a fee from April 1, 2023? ET Wealth decodes how this new rule will affect you.
UPI merchant transaction interchange fee: What does NPCI say?
As per the circular by NPCI, certain UPI merchant transactions made via prepaid instruments will carry an interchange fee of up to 1.1 per cent of the transaction amount. The interchange fee will be applicable on specified categories of merchants such as online merchants, large merchants, and small merchants for transactions of over Rs 2,000 from April 1, 2023.
Do you have to pay any fee to send money to friends, family or any other person via UPI?
The interchange fee will not be applicable to peer-to-peer (P2P) transactions or peer-to-peer-merchant (P2PM) transactions between a bank and the prepaid wallet, said NPCI. P2PM is the NPCI classification for small businesses which have a projected monthly inward UPI transaction of less than or equal to Rs 50,000. So, if you are sending money to friends, family or any other individual or a small business merchant’s bank account, it will not attract an interchange fee.
“The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers, and it is further clarified that there are no charges for the bank account to bank account based UPI payments (i.e. normal UPI payments),” said NPCI in a release on March 29, 2023.
Which UPI payments will attract an interchange fee?
As stated by the NPCI, only certain merchant transactions made by prepaid payment instruments will attract the interchange fee. Wallets, smart cards, vouchers, magnetised chips come under prepaid payment instruments. A few examples of wallets are the Paytm wallet, PhonePe wallet, Amazon Pay, MobiKwik wallet, SODEXO vouchers.
Also Read: NPCI sets 1.1% interchange fee on UPI payments via prepaid instruments, wallets
Now suppose, you have money in your Paytm or PhonePe wallet and you go to a store and scan the QR code and pay it from your wallet. If the transaction amount is above Rs 2,000, an interchange fee of up to 1.1 per cent will be levied.
What is the interchange fee and who will have to pay?
Interchange fees are transaction fees that the merchant has to pay whenever a customer processes a transaction. So, if you are making a prepaid payment through UPI at a store using a PhonePe QR code, the merchant has to pay the interchange fee to the payment service provider, which is PhonePe here. Simply put, the interchange fee is similar to the merchant discount rate applicable to credit cards.
Users do not have to pay any interchange fee.
How much are the interchange fees for UPI merchant transactions via PPI?
The interchange fee will vary in the range of 0.5 per cent to 1.1 per cent, based on the merchant category codes, said NPCI. An interchange fee of 0.5 per cent will be levied for categories such as fuel, education, agriculture, and utility payments. Categories such as convenience stores, and specialty retail outlets will have an interchange fee of 1.1 per cent.
Will you have pay a fee to make UPI payments via wallets?
As explained, the interchange fees are typically paid by the merchants to the wallets or card issuers. Smaller shopkeepers will not be impacted as the interchange fee is not applicable to them. Medium category shopkeepers will have to bear this cost only on transactions of above Rs 2,000. However, this move will impact high-value transactions. It will depend on the merchant whether they want to absorb the higher costs. If merchants decide to pass the higher cost to customers, then they will be impacted.
“UPI has now become a mature product in India and a MDR was inevitable to have a sustainable revenue model for the entire digital ecosystem. We do anticipate some friction at the merchant’s end in providing UPI as a service to all customers, limiting the usage. Having said that, this will encourage more participation from the banking sector in UPI as a service if there is a revenue model put in place,” said Karan Mehta, CTO, RING.
Also Read: No charge on normal UPI transactions for customers, says NPCI
How will this benefit the payment services providers such as Paytm, PhonePe, and Amazon Pay?
“This decision is expected to bring in much-needed revenue for payment service providers, who have been struggling to maintain profitability due to the low-transaction fees on UPI transactions,” said Ashwin Chawwla, Founder and Managing Director, Escrowpay.
Will you have to pay a fee to recharge your Paytm, PhonePe, or Amazon Pay wallet?
NPCI has asked the prepaid payment instrument issuers to pay 15 basis points as a wallet-loading service charge to the remitter bank for recharging a wallet with over Rs 2,000. For instance, if you recharge your Paytm or PhonePe or Amazon Pay wallet with more than Rs 2,000, Paytm will pay a wallet-loading service charge of 0.15 per cent to your bank.
You don’t have to pay any additional fee to recharge your wallet to make UPI transactions yet. However, if the wallet issuers decide to pass on the 15 bps service fee, loading wallets could cost more.