UPI merchant transactions above Rs 2,000 via PPIs to attract 1.1% interchange fee: NPCI issues new rules

UPI transaction charges: The National Payments Corporation of India (NPCI) has suggested the implementation of an interchange fee for Prepaid Payment Instruments (PPIs) on Unified Payments Interface (UPI) transactions exceeding Rs 2,000. The proposal recommends an interchange fee of up to 1.1 percent with the objective of boosting revenue for banks and payment service providers who have faced significant costs in facilitating UPI transactions. The NPCI has set a deadline for reviewing the interchange pricing, which is September 30, 2023.

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Unified Payments Interface (UPI) is currently the most widely used and popular payment system in the country, enabling instant bank-to-bank money transfers through mobile devices. Digital wallets such as Paytm, PhonePe, and Google Pay function as Prepaid Payment Instruments (PPIs), allowing users to store money and conduct transactions. 

An interchange fee is a charge levied by one bank to another bank for processing a transaction. In the case of UPI transactions, the bank of the payee (the individual or business receiving payment) pays an interchange fee to the bank of the payer (the person making the payment).

The implementation of NPCI’s new interchange fee on UPI transactions will not negatively impact users, as the fee will solely apply to merchants who receive payments exceeding Rs 2,000 using prepaid payment instruments (PPIs) like mobile wallets. Individual users conducting personal transactions through UPI will not be subjected to any additional charges.

The NPCI is optimistic that the introduction of an interchange fee for PPI providers on UPI transactions of higher values will encourage them to incentivize users to transact on UPI, raising the average transaction value and decreasing the overall expense of payment systems in India.

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The NPCI has claimed that the proposed interchange fee for UPI transactions aligns with the recommendations of the Committee on Payments and Market Infrastructures and the World Bank, which advocate for an interchange fee of up to 1.15 per cent for UPI transactions.

Nevertheless, the ultimate decision lies with the Reserve Bank of India (RBI), the governing body for payment systems in India. The NPCI has submitted its proposal to the RBI, and it is uncertain whether the recommendation will be approved.

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