National Payments Corporation of India (NPCI), the governing body of Unified Payment Interface (UPI) – India’s prominent digital payment network – has announced it will be levying Prepaid Payment Instruments (PPI) fees on merchant transactions, beginning April 1.
The fee would be levied on transactions above Rs 2,000 ($24) which will result in an interchange at 1.1 per cent of the transaction value. Usually, the interchange fee is associated with card payments, used to cover the costs related to accepting, processing and authorising transactions.
While the broad fee of 1.1 per cent is applicable over the Rs 2000 limit, NPCI has set different merchant fee structures as well.
Reportedly, the interchange will be one per cent for mutual funds, insurance and railways, 0.9 per cent for supermarket, 0.7 per cent for telecom, education, agriculture and 0.5 per cent for fuel, according to the advisory.
Notably, the fee will not be applicable when the payment is made using a person-to-person transaction or person-to-merchant transaction.
“Interchange shall not be applicable to P2P (peer to peer) and P2M (peer to merchant) transactions between “bank account and the PPI wallet,” reads the NPCI circular.
Though the jargon may sound confusing, a simple example ought to clear the new rules.
If an individual goes to buy a smartphone at a retailer’s shop and scans the QR code to make the payment using a digital wallet, the customer will not have to pay anything extra. However, since the mobile phone is above the Rs 2,000 threshold, the merchant will have to pay a certain fee to the wallet service provider such as Google Pay, PhonePe, and Paytm.
Similarly, if a customer wants to load more than Rs 2000 in their Paytm wallet, say using an Axis Bank savings account, Paytm will have to pay 0.15 per cent of the amount as fees to the bank. No additional charge will be levied on the customer.
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The move has been brought in to help the wallet providers and banks who had not been able to earn any revenue despite scaling their operations countrywide. However, the one downside is that merchants, due to a lack of communication, may stop accepting UPI payments altogether. The reality is that share of digital wallets in UPI payments is significantly small and thus the charges may not burn a hole in merchants’ pockets.
UPI’s introduction in India
It was in 2016 that NPCI introduced the revolutionary UPI system. PhonePe was one of the first platforms to integrate UPI into its system. A year later, several competitors followed the suit and since then, UPI has transformed into a behemoth that even foreign nations are looking to get their hands on.
Singapore and Bhutan have already adopted UPI with a few more countries waiting to join the bandwagon.
(With inputs from agencies)
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