UPI wallet transactions exceeding Rs 2,000 incur a 1.1% fee, but who pays for that?

In a recent circular, the National Payments Corporation of India (NPCI) suggested imposing an interchange fee of 1.1% on certain merchant UPI transactions exceeding Rs 2,000 made with prepaid payment instruments (PPI), such as online wallets.

The changes, as stated in the March 24 circular, will take effect on April 1, 2023, and the aforementioned pricing will be reviewed by September 30, 2023.

However, who is responsible for paying this fee? Concerned that they will be liable for the interchange fee, many social media users are unsure of the NPCI's recommendation.

No impact on customers

However, according to the NPCI's circular, the end customer will not be affected by the 1.1% interchange fee, and UPI transactions will continue to be free for them.

In its circular, the NPCI stated that there would be no interchange fee for Peer-2-Peer (P2P) and Peer-2-Merchant (P2PM) transactions between a bank account and a PPI.

This fee, which is likely to be paid by the merchant acquirer to the wallet issuer, will only apply to digital wallet transactions made via merchant QR codes. As a result, the interchange fee has no effect on either the customer or the merchant.

Additionally, Paytm Payments Bank issued an explanation regarding the circular. "Regarding NPCI circular on interchange fees and wallet interoperability, no customer will pay any charges on making payments from #UPI either from the bank account or PPI/Paytm Wallet," the company stated on Twitter.

Merchant acquirers pay wallets or card issuers interchange fees, but passing them on to merchants could have a negative impact. However, because it only applies to payments of more than Rs 2,000, smaller merchants and shopkeepers are unlikely to be affected.

Customers who use PPIs like wallets for UPI transactions will not be affected by the fee at this time, but they may be affected in the future if merchants decide to share the burden.

A wallet loading service charge of 15 basis points must be paid by the PPI issuer to the remitter bank (the account holder's bank) for loading transactions with a value of more than Rs 2,000, according to the NPCI.

This means that the PPI issuer will have to pay a fee to the remitter bank when a customer loads a digital wallet for UPI transactions. This has no effect on customers at this time, but it could have an effect if wallet issuers decide to charge customers an additional fee.

The NPCI clarified the interchange fee in a new press release issued today. Prepaid payment instruments (PPI Wallets) have been allowed to join the interoperable UPI ecosystem under recent regulatory guidelines. As a result, the PPI wallets can now be a part of the interoperable UPI ecosystem, as stated by NPCI.

It went on to say that "the introduced interchange charges are only applicable to PPI merchant transactions and there is no charge to customers," and that "bank account to bank account based UPI payments (i.e. normal UPI payments) are free of charge."

Customers will be able to use any bank account, RuPay Credit card, and prepaid wallets on UPI-enabled apps, according to NPCI's statement.