UPI Interchange Fee- What is it and How will it Impact Wallet Payments?

There is a lot of uncertainty over whether or not UPI transactions would be charged a fee as a result of a recent National Payments Corporation of India circular. There won't be any fees associated with using UPI to make payments for regular users, to put it simply. Here is all you need to know about UPI Interchange Fee. For merchant UPI transactions of Rs 2,000 or more made using digital wallets, the National Payments Corporation of India (NPCI) has suggested a 1.1 percent interchange charge. According to an NPCI internal circular, the charge will be reviewed in September and will take effect on April 1. Now, there is a lot of uncertainty over who is responsible for paying this interchange charge.

According to NPCI, UPI bank-to-bank transactions would continue to be free for both clients and merchants and will not be impacted by the interchange charge. Almost 99.9% of all UPI transactions are made with these forms of payments. For instance, there are zero fees associated if a client uses UPI to pay a business using his bank account. There are no fees involved even if a consumer uses Paytm UPI, for instance, to pay using a bank account on PhonePe QR or GooglePe QR. Simply put, the interchange fee only applies to wallet payments made through UPI to a merchant and only if the value exceeds Rs 2,000. It does not apply to UPI bank-to-bank transfers.

The interchange fee was imposed by NPCI as a result of enabling prepaid payment instrument (PPI) wallets to be a part of the interoperable UPI ecosystem, allowing customers to use their Paytm or AmazonPay Wallet balance, for instance, to pay with a PhonePe QR or Google Pay QR, or vice versa.

What is the UPI wallet interchange charge?

Simply said, a merchant's bank (the acquirer and supplier of the QR code) pays an interchange charge to the wallet issuer of the client for the acceptance of PPI-based UPI payments. It should be noted that the interchange charge, which is normally determined by the NPCI, the company that provides the UPI network, is 1.1% in this case for wallet UPI transactions exceeding Rs 2,000. The interchange fees would only be applied to PPI merchant transactions involving wallet-UPI payments of Rs 2,000 or more, the NPCI has made quite clear. Customers won't be affected by this because they may use their digital wallets to make UPI payments on merchant QRs issued by any payment systems, so there won't be any effects on them. Consumers will now be able to use any bank account, RuPay credit card, and prepaid wallets on UPI-enabled applications thanks to this enhancement to UPI, according to NPCI.

Are merchants affected?

Whilst technically not taken directly from them, the fee will be imposed on the merchant side. The wallet issuer, or platform that gives a client access to their digital wallet, will get payment from the merchant acquirer, who creates the QR code for the merchant. As long as the acquirer does not pass it through to the merchants, the interchange charge will not have an influence on them directly. Larger merchants who are more likely to regularly process PPI-based UPI transactions might be impacted if the acquirer chooses to pass the fee through. Thus, banks or acquirers who must pay this cost to consumers' wallet issuers will be affected by the interchange fee. For those who provide payment services, this will increase their revenue. Moreover, NPCI has advised that if the transaction amount exceeds Rs 2,000, the PPI issuer of the consumer should pay a wallet loading fee of 15 basis points to the remitter bank (the customer's bank account). As users load their wallets, this will effectively help banks increase their income. By instituting these two fees, NPCI appears to be attempting to level the playing field for banks and wallet providers in order to encourage interoperability of digital wallets.