What is UPI?
UPI Transaction Not Free Anymore: Unified Payments Interface, commonly known as UPI, is a digital payment system that facilitates real-time transactions between two bank accounts using a mobile phone. It was launched in 2016 by the National Payments Corporation of India (NPCI) and has since become one of the most popular digital payment methods in India. UPI allows users to transfer money, make payments, and pay bills without the need for cash or physical cards.
How does UPI work?
UPI operates on a ‘virtual address’ system, where each user is assigned a unique virtual address, which is linked to their bank account. This virtual address can be used instead of providing the bank account number and IFSC code while making transactions. UPI also offers the option of creating a Virtual Payment Address (VPA), which is a unique identifier that is easy to remember and share with others.
UPI Transaction Not Free Anymore
The Unified Payments Interface (UPI) is India’s most popular payment system, enabling users to transfer funds instantly between bank accounts using their mobile devices. Meanwhile, digital wallets such as Paytm, PhonePe, and Google Pay are among the many PPIs available in India that allow users to store and pay money. Recently, the National Payments Corporation of India (NPCI) introduced an interchange fee for UPI transactions made through prepaid payment instruments (PPIs), a move that has caused some confusion among Indian merchants and customers.
Now coming starting the 1st of April any UPI transactions of more than 2000 rupees that you make via prepaid payment instruments which is your online wallets or pre-loaded gift cards Etc are going to carry an interchange fee now
What is an Interchange Fee, and How Does It Affect UPI Transactions?
It is the fee which is paid to wallet issuers like your Banks payment Banks Etc Buy payment service providers which your phone pay, Google pay or other Banks Etc cover the cost of accepting processing and authorizing transactions.
An interchange fee is a fee charged by one bank to another bank for processing a transaction. In the case of UPI transactions, the bank of the merchant (i.e., the person or business receiving payment) pays an interchange fee to the bank of the payer (i.e., the person making the payment). This fee ensures that both banks are compensated for their role in facilitating the transaction.
The NPCI recently permitted PPI wallets to be part of the interoperable UPI ecosystem. This change means that an interchange fee will be charged for PPI merchant transactions. However, there will be no charges to customers, and there are no charges for bank account-to-bank account-based UPI payments (i.e., normal UPI payments). Therefore, individual users making personal transactions using UPI will not be charged any additional fees.
Where interchange Fee won’t Apply?
Now, this fee will not be applicable for person-to-person transactions or person to Merchant transactions between a bank and the prepaid wallet which means you and I don’t have to pay any additional fee for using the UPI just yet now for UPI transactions of more than 2000 rupees through PPIs there’s going to be an interchange fee of 1.1 per cent.
The second charge will be the wallet loading charge so the issuer of the prepaid instrument like your Paytm or Ola Financial Services wallet and so on will now have to pay 15 basis points of 0.15 per cent as the wallet loading charge to the limiter bank that is the account holders bank account.
UPI Merchant Transaction Fee
| Wallet Charges | Interchange | Cap |
| Fuel | 0.5 % | N.A |
| Education | 0.7 % | Rs 15 |
| Govt | 1% | Rs 10 |
| Mutual Fund | 1% | Rs 15 |
| Convenience Stores | 1.1% | N.A |
UPI Transaction of rs 2000 to be charged
If more than 2000 Rupees is loaded onto the wallet now NPCI has specified that interchange rates are going to vary depending on the profile of the merchants so for specific Industries charges range from 0.5 per cent to 1.1 per cent for example UPI payments that you make to fuel service stations using a PPI instrument are going to carry an interchange of 0.5 for Education fees that you pay using UPI the charge will be 0.7 but it will be capped at 15 rupees per transaction and so on and so forth
now NPCI has said that this pricing is going to be reviewed on or before the 30th of September this year to give you an example of how these charges work for example if I have an ICICI Bank account and I use a Paytm wallet now if I want to load that wallet with more than 2000 rupees say 5000 rupees from my wallet to the bank Paytm will have to pay 15 basis Point as wallet loading fee to my bank which is ICICI Bank.
Now next step let’s assume I go to a retailer to buy a laptop using a UPI via my Paytm wallet so, in this case, the bank or the payment provider acquires the retailer as a merchant on their platform for instance if access bank or Google pay or whoever put a QR code on the Retailer’s shop they will have to pay 1.1 percent as Interchange to Paytm wallet for facilitating this transaction now experts believe this could be the first term and we could see more interchange being announced on other modes of payment as well but as of now you know no charges for customers like you and me.
Conclusion
In conclusion, the NPCI’s decision to introduce an interchange fee for PPI merchant transactions on UPI has caused some confusion among Indian merchants and customers. However, individual users making personal transactions using UPI will not be charged any additional fees. The proposed interchange fee is in line with international recommendations and is aimed at incentivizing PPI providers to promote UPI transactions for higher amounts, which could ultimately reduce the overall cost of payment systems in India.
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