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UPI Payments via PPI To Attract 1.1% Interchange Fees: Will It Impact You?

Interchange fees are usually a cost for merchants, but does it have no bearing no customers?

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Starting 1 April, UPI transactions that are done using prepaid payment instruments (PPI) will attract an interchange fee of upto 1.1 percent as long as the transaction is above ₹2,000, as per multiple reports.

What does this mean the next time you pull out your phone to make a payment? Let us bring you up to speed.

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Will you have to pay interchange fees for every UPI transaction?

The answer is no. NPCI's move to introduce interchange fees does not apply to peer-to-peer (P2P) transactions or even peer-to-peer-merchant (P2PM) transactions. You will be able to transfer money via UPI to another person's bank account or to a merchant's bank account without additional charges.

The Unified Payments Interface or UPI serves as guardrails for mobile digital payments in India and it is run by the National Payments Corporation of India (NPCI) – a not-for-profit, umbrella entity that is backed by the RBI, among others.

With that out of the way, let's move on to the next question.

What is new and when was it announced?

So far, UPI services have been free. But on Tuesday, 29 March, CNBC-TV18 reported that certain types of UPI transactions will attract an interchange fee of upto 1.1 percent.

The next day, NPCI issued a statement that read: "Recent regulatory guidelines, the Prepaid Payment Instruments (PPI Wallets) have been permitted to be part of interoperable UPI ecosystem."

“The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers," it added. The interchange fees will be reviewed by the NPCI on or before 30 September 2023.

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Which type of UPI transactions will incur these charges?

The interchange fees will apply for UPI transactions that are worth more than ₹2,000 when:

  • You are loading money into your digital wallet using UPI

  • You are paying a merchant via a wallet, pre-loaded gift card, or any other prepaid payment instrument (PPI)

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Who exactly will be charged?

Basically, the 1.1 percent interchange fee will come out of the merchant's pocket and will go to the receiver bank or payment service provider.

To reiterate, users will not have to shoulder these charges.

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Will any of this effect the customers?

Yes. Even though the interchange fee isn't directly levied on customers, it could lead to them paying more.

"Of course - merchant will price 1% more implicitly- for he doesn't know when you scan via QR - you are using wallet / bank account," tweeted Srikanth Lakshmanan, a member of Cashless Consumer, a consumer protection collective for digital payments.

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