The National Payments Corporation of India (NPCI) notified via a release recently that an interchange fee of up to 1.1 per cent will be applicable on merchant UPI (Unified Payments Interface) transactions above Rs 2,000 from April 1. The new UPI rule has sparked confusion amongst users about whether they’ll have to pay a charge on UPI transactions over Rs 2,000. While the short answer is No, here’s what the new UPI rule means.
What is the new UPI rule?
In a release made public on March 29, NPCI conveyed that using Prepaid Payment Instruments (PPIs) for transactions through UPI will attract an interchange fee. The charges will be levied only if the transaction is more than Rs 2,000. While the interchange fee varies for the different categories of merchants, it ranges from 0.5% to 1.1%, and an upper limit is also applicable in certain categories.
Are you affected by the new UPI rule?
No, consumers won’t be affected by the new UPI rule as it is aimed at merchants. NPCI said the introduced fee only applies to merchant transactions made through prepaid payment instruments. The payments body clarified that no charges will be levied on normal UPI payments, which it termed as “bank account- to-bank account based UPI payments.”
In other words, there’s no charge on UPI payments of any sort that would be levied on the customer. The fees will only be levied on merchants, and that too only then, when you use PPI for transactions. Wallets, smart cards, vouchers, magnetised chips come under prepaid payment instruments. A few examples of wallets are the Paytm wallet, PhonePe wallet, Amazon Pay, MobiKwik wallet, etc.
For instance, if you scan a PhonePe QR Code at a shop and pay an amount of more than Rs 2,000 via a wallet, be it the PhonePe Wallet or the Paytm wallet, a fee will be levied that is to be borne by the merchant and not the customer. However, if merchants decide to impose a charge on such transactions, that would be a different case.
In this case, PhonePe would pay a certain percentage of the transaction amount (of above Rs 2,000) as an interchange to Paytm because it is Paytm whose wallet is being used to make the payment. Again, the customer doesn’t have to pay anything extra over the transaction amount.
Moreover, another added benefit for the customer is that they can now pay using different online wallets. They can also do UPI using Rupay credit cards. In other words, the interoperability of wallets has been implemented for the sake of customers’ convenience so they can make payments without any hassle.
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How is the merchant affected?
Apart from the charge mentioned above, there’s the second charge, the standard wallet loading service fee of 0.15%. The wallet has to pay this charge to the account holder’s bank. For instance, you use your bank account, say an Axis bank account, to load Rs 2,000 into your Paytm wallet. Now, Paytm will have to pay 0.15% of this amount as a fee to Axis Bank.
While no charges are to be borne by the customer, Paytm or any other wallet service could levy a fee themselves on loading money onto the wallet to cover the fees from the customer, which they have to pay to the bank.
Furthermore, if any merchant or business earns less than Rs 50,000 through UPI monthly, they won’t have to pay such charges. This means that small merchants will not have to pay anything extra.
What is the rate of intercharge fees?
The interchange fee will vary in the range of 0.5 per cent to 1.1 per cent, based on the merchant category codes, according to NPCI. An interchange fee of 0.5 per cent will be levied for categories such as fuel, education, agriculture, and utility payments. An interchange fee of 1.1 per cent applies to categories such as convenience stores and speciality retail outlets.