Since the government first implemented demonetisation in 2016, the Center has been promoting paperless payments. Even while cash is still king in today's world, internet payments have increased significantly. The number of transactions peaked at a record 782 crores in 2022, marking the apex of the Unified Payments Interface (UPI). UPI transactions in December reached a record high of Rs 12.82 lakh crore.
The volume of transactions climbed by 7.12% in December compared to November, while the value of transactions increased by 7.73% during the same period, according to figures released by the National Payments Corporation of India (NPCI), the regulating body for retail digital payments. Payments made through UPI had reached the Rs 12 lakh crore milestone in October of 2022.
Since the beginning of the pandemic and lockdowns two years ago, both the quantity and value of UPI transactions have increased dramatically. According to experts, UPI's upward trajectory is a reflection of both the revival of the overall economy and the growing use of digital payment methods by customers for everyday transactions.
The News
In India, UPI is at present the most popular and extensively utilised payment method for customers for immediate transfer of money between bank accounts via their mobilephones. On the other hand, PPIs are online wallets that let people save money and make payments. PPIs in India like PhonePe, Paytm, and GPay are available. An interchange fee is the amount incurred by one bank while implementing a transaction with another bank. The merchant's bank (the person or business who receives the payment) pays the bank of the payer the interchange fee in the case of UPI transactions (the person making the payment).
/content-assets/3ee5da4a4bb5465cb5e25fb3c9dfd95a.png)
The National Payments Corporation of India (NPCI) recently announced that, starting on April 1, merchant Unified Payments Interface (UPI) transactions will be subject to an additional interchange fee of up to 1.1%. These fees apply to any transactions made with prepaid payment instruments (PPIs), such as wallets or cards, that total more than Rs 2,000.
The interchange fee will be charged on UPI payments made to small and large offline and online retailers alike. Yet not every transaction will be subject to the same surcharge. The interchange fee range that may be assessed in accordance with applicable caps has been provided by the NPCI for a number of merchant types.
The UPI payment system's regulatory body also stated that PPI fees would be charged on transactions over 2,000 made using UPI. There will be an interchange at the rate of 1.1% of the transaction's value.
According to reports, the amendment is intended to raise revenue for banks and payment service providers, who are reportedly having difficulty making ends meet due to the high charge of UPI transactions. From April 1, a fee will be charged, and by September 30, 2023, the interchange rate will be revised.
The Confusion
|
Which transactions attract the charging of fees
|
Which transactions do not attract the fee
|
|
If the user uses UPI to transfer the amount of more than Rs. 2000 to the wallet
|
Peer-to-peer
|
|
PPI includes wallets and preloaded gift cards which banks issue
|
Peer-to-merchant between a bank and PPI wallet
|
|
Apps which have a wallet facility
|
Payments made via UPI, for example, Paytm, Google Pay, Phone pay
|
|
Issuers of pre-paid instruments like OLA Financial Services, Paytm, etc need to pay 15 bps
|
Payments to friends, family or other individuals
|
|
Interchange fee varies from 0.5-1.1 % according to the services
|
Payments to Merchant’s bank account
|
What is an interchange fee?
When a consumer uses a credit/debit card to make a purchase from a merchant's shop, the merchant's bank account is required to pay transaction fees. To cover handling expenses, fraud and bad debt costs, as well as the risk associated with approving the payment, the fees are paid to the card-issuing bank.
|
Interchange fee
|
Services (as mentioned by NPCI)
|
|
0.5%
|
Fuel
|
|
0.7%
|
Telecom, utilities/post office, education, agriculture
|
|
0.9%
|
Supermarkets
|
|
1%
|
Mutual Funds, Government, Insurance and Railways
|
Who’s gonna pay?
For instance, if a customer uses UPI (Paytm or Google Pay) to make a PPI payment in-person or online and the QR code reads "PhonePe," PhonePe will be paid the appropriate interchange charge by the retailer.
The merchant's bank (the person or business receiving the payment) pays the user's bank the interchange fee for rendering UPI transactions (the person making the payment.
Conclusion
The major UPI transactions now only involve small amounts. The NPCI claims that by rewarding PPI companies for promoting UPI transactions for a larger amount, the average transaction value of UPI can increase, and the overall cost of India's payment systems can be brought down.
The Council on Payments and Market Infrastructures and the World Bank both advocate interchange fees of up to 1.15 % for UPI transactions, and the NPCI claims that the recommended interchange fee is in accordance with their guidelines.