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1.1% fee hike for UPI transactions above Rs.2000 from 1st April!

The National Payments Corporation of India (NPCI) has said that Prepaid Payment Instruments (PPI) fees would be applied to merchant transactions on Unified Payments Interface (UPI) beginning on April 1. The UPI governing body, in a recent circular — Prepaid Payment Instruments (PPI) fees on merchant transactions on Unified Payments Interface (UPI), said that for amounts over Rs 2,000, transactions using PPIs on UPI will have to pay 1.1 per cent of the transaction value. The interchange pricing will be introduced on April 1, 2023, and then again reviewed by September 30, 2023.

The interchange fee can be associated with card payments and is levied to cover the costs of accepting, processing, and authorising transactions. The introduction of interchange fees is aimed at increasing revenue for banks and payment service providers.

The interchange fee will be applicable in the range of 0.5-1.1 per cent on various services. An interchange fee of 0.5 per cent will be applicable on fuel, 0.7 per cent for telecom, utilities/post office, education, agriculture, 0.9 per cent for supermarket, 1 per cent for mutual fund, government, insurance and railways.

The interchange fee would not be applicable on peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions between a bank account and a PPI wallet. The PPI issuer will pay the remitter bank approximately 15 basis points as a wallet-loading service charge. Therefore, payments made via UPI, like Paytm, Phonepe, Google Pay, to friends, family or any other individual or a merchant’s bank account will not be affected by this interchange fee.

Traditionally, the most preferred method of UPI transactions is linking the bank account in any UPI-enabled app for making payments, which contributes over 99.9 per cent of total UPI transactions. The NPCI, in its circular, said the proposed interchange fee is in line with the recommendations of the Committee on Payments and Market Infrastructures and the World Bank, which suggest an interchange fee of up to 1.15 per cent for UPI transactions.

However, the final decision rests with the Reserve Bank of India (RBI), which is the core regulator of payment systems in India. The NPCI has submitted its proposal to the RBI and will have to wait to see whether the RBI will approve its recommendation

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