1.1% fee on UPI transactions above Rs 2,000, but who pays that?

By Koustav DasThe National Payments Council of India (NPCI) recently released a circular in which it recommended a 1.1 per cent interchange fee on merchant UPI transactions above Rs 2,000 made through prepaid payment instruments (PPI) like online wallets.

As per the circular issued on March 24, the changes will come into effect from April 1, 2023 and the above pricing will be reviewed on or before September 30, 2023.

But the question is who pays this charge? Many on social media are confused about the NPCI’s recommendation, worrying if they will have to bear the brunt of the interchange fee.

No impact on customers

But as per the NPCI’s circular, the interchange fee of 1.1 per cent will have no impact on the end-customer and UPI transactions will remain free for them.

NPCI said in its circular that Peer-2-Peer (P2P) and Peer-2-Merchant (P2M) transactions between a bank account and a PPI will not require an interchange fee.

“Interchange at the rate of 1.1 per cent of the transaction value/amount shall apply to payments made to all online merchants, large merchants and small merchants,” the NPCI said.

Also Read | UPI merchant transactions of more than Rs 2,000 to be charged at 1.1 per cent starting April 1, all details

Paytm Payments Bank also issued a clarification on the circular. On Twitter, it said, “Regarding NPCI circular on interchange fees and wallet interoperability, no customer will pay any charges on making payments from #UPI either from bank account or PPI/Paytm Wallet.”

It should be noted that interchange fees are paid by merchants to wallets or card issuers. However, smaller merchants and shopkeepers are unlikely to be impacted as it is applicable only on payments of over Rs 2,000.

While the move will have no impact on customers who use PPIs for UPI transactions, they could be impacted later if merchants decide to pass on the burden.

As of now, the merchant discount rate (MDR) or merchant transaction fees for bank-to-bank UPI transactions is nil. And it is unlikely that MDRs will be introduced on all kinds of UPI P2M transactions anytime soon.

NPCI also said the PPI issuer shall pay 15 basis points as a wallet loading service charge to the remitter bank (account holder’s bank) for loading transaction value greater than Rs 2,000.

This means when a customer loads a digital wallet for UPI transactions, the PPI issuer shall have to pay a charge to the remitter bank. While this does not have any impact on the customer at the moment, this could impact customers if wallet issuers decide to pass on this additional charge to customers.