While the Unified Payments Interface or UPI has been dubbed a game-changer in India for its fast, secure, and convenient payment method, should the latest charges levied on UPI transactions of more than Rs 2,000 worry its mass users?
Come April 1, if the UPI transactions exceed Rs 2,000 through the prepaid payment instruments (PPIs), it will attract a 1.1 per cent fee.
The National Payments Corporation of India (NPCI) announced this on Wednesday, simultaneously highlighting the ever-expanding universe of the UPI ecosystem. As a result, many UPI users may be confused or unclear about how and where the latest charges could apply.
So, let’s see whom and how the new fees would affect.
What Does It Mean for Customers?
In its circular, the NPCI said an “interchange” fee of up to 1.1 per cent would apply to UPI transactions of more than Rs 2,000 through PPIs.
But there is a catch. It will apply only to PPI merchant transactions.
NPCI explains: “The interchange charges introduced are only applicable for the PPI merchant transactions; there is no charge to customers.”
Customers don’t have to pay interchange fees for peer-to-peer (P2P), peer-to-peer-merchant (P2PM) or standard UPI payments, such as bank-to-bank account transfers.
Bank-account-to-bank-account transactions are free for both customers and merchants.
Announcing the fee, NPCI further notes that linking the bank account in any UPI-enabled app for making payments is traditionally the most preferred method of UPI transactions, contributing over 99.9 per cent of the country’s total UPI transactions.
With the new fee guideline, the point-to-point protocol (PPP) issuers will have to pay 15 basis points (bps) to the remitter bank for transactions of over Rs 2,000.
However, the interchange fee varies from 0.5 per cent to 1.1 per cent, depending on the merchant categories. NPCI is expected to review the pricing on or before September 30, 2023.
How Does UPI Work?
UPI allows users to link more than one bank account in a smartphone app for fund transfers without requiring the IFSC code or the bank account number.
Funds are credited in real-time. Users use a virtual payment address for the transaction. UPI has quickly become the most preferred digital payment method, developed by NPCI and regulated by the Reserve Bank of India (RBI).
All you need is a smartphone, a bank account, a mobile number linked to the bank account, and an internet connection; no wonder it has seen enormous success. UPI is compatible with most banks, digital wallets, and payment applications such as Google Pay, Paytm, PhonePe, etc.
What’s The Way Forward?
The finance ministry had earlier ruled out levying any charges on UPI transactions, stressing that “UPI is a digital public good”.
The latest circular comes after the Reserve Bank of India (RBI) reportedly noted in a recent discussion paper that UPI transactions are similar to the Immediate Payment Service or IMPS. Hence, UPI transaction fees could be identical to the charges for IMPS fund transfers.
Since the PPI Wallets have been permitted to be part of the interoperable UPI ecosystem, NPCI has now allowed them to be part of that ecosystem, it added.
It has been reported that the interchange fee is currently 0.7 per cent for telecom, education, utilities, and post office. For supermarkets, it is 0.9 per cent, insurance, government, mutual funds, and railways 1 per cent, fuel 0.5 per cent, and agriculture 0.7 per cent.