Home/ News / India/  UPI payments to now cost more, who will pay and what are the charges - explained

The new announcement by payment gateway NPCI or National Payments Corporation of India has led to confusion among those who depend on Unified Payments Interface (UPI) or mobile payments for their day-to-day transactions. The skepticism was regarding if UPI payments will now be charged or continue to remain free.

Clearing the air about the recently introduced interchange charges, NPCI said that bank to bank account transfer via UPI will continue to remain free.

This means that regular UPI transactions, the ones that are made directly from bank account to bank account, will remain free. There are three ways to transfer money via UPI -- by entering the virtual payment address (VPA) of the receiver, account number and IFSC code or QR code.

So, what will change from 1 April?

From 1 April, 2023, an extra interchange fee of 1.1 per cent will be charged on merchant (the person or business receiving the payment) UPI transactions of over 2,000 using prepaid payment instruments (PPIs) – wallets or cards.

An interchange fee is the fee charged by the receiver bank/payment service provider to the merchant.

In simple words, the charge will apply if a customer has a wallet of one particular company and makes a payment to a merchant, who has a wallet of another company.

However, there are no charges for normal customer transactions or for bank account-to-bank account-based UPI payments.

What are the charges? 

The interchange fee varies for the different categories of merchants. It starts from 0.5 per cent to 1.1 per cent and a cap is also applicable in certain categories.

For telecom, education, and utilities/post office, the interchange fee is 0.7 per cent while for supermarkets the fee is 0.9 per cent of the transaction value. About 1 per cent charges will be levied for insurance, government, mutual funds and railways, 0.5 per cent for fuel, and 0.7 per cent for agriculture.

"Interchange charges are only applicable for the PPI merchant transactions and there is no charge to customers," NPCI said in a statement.

This levy was being introduced to help cover for the cost of interchange or interoperable between two wallets.

NPCI has permitted the PPI wallets to be part of interoperable UPI ecosystem and levied 1.1 per cent charge on UPI transactions above 2,000 while using PPI.

Which transactions will not attract interchange fees, then?

NPCI said the interchange fee will not be applicable on P2P or peer-to-peer transactions and P2PM or peer-to-peer-merchant transactions between a bank account and a PPI wallet.

Essentially, this charge will only apply to digital wallet transactions made via merchant QR codes.

This means that all payments made using UPI such as Paytm, Phonepe, Google Pay to friends, family or to a merchant’s bank account will not be affected by this interchange fee.

So, who will pay these charges?

The fee of 1.1 per cent will not be charged on UPI payments, but only on payments of 2,000 or higher made from digital wallets to UPI IDs.

For instance, if a customer tries to make a PPI payment via UPI (Paytm/Google Pay) at a store or online, and the QR code is that of PhonePe, then PhonePe will receive the applicable interchange fee from the merchant.

The fee will be levied on the merchant side. Therefore, merchants may or may not choose to pass on the extra fee to consumers.

What is PPI?

Prepaid payment instruments include mobile/payment wallets (such as Paytm Wallet, Amazon Pay Wallet, PhonePe Wallet), smart cards, stripe cards, paper vouchers, etc. With the use of of PPIs, a person can send and receive money without any physical exchange of cash or card.

"The guidelines make wallets more appealing to customers by opening up newer use cases of payments. It will eliminate the need for customers to carry multiple cards, thereby reducing fraud and theft due to the exposure of card numbers," said Akash Sinha, Co-founder & CEO, of Cashfree Payments.

Current UPI transactions charges

At present, there are no charges levied on transactions done via UPI. The government had mandated a zero-charge framework for UPI transactions till now. This means that charges in UPI were nil for users and merchants alike.

More data

Share of individual to merchants transactions above 2,000 is about 5 per cent of the total transactions last month.

In recent times, UPI has emerged as the preferred mode of digital payment by offering free, fast, secure and seamless experience.

Traditionally, the most preferred method of UPI transactions is linking the bank account in any UPI-enabled app for making payments, which contribute over 99.9 per cent of total UPI transactions.

The volume of UPI transactions has increased manifold from 0.45 crore in January 2017 to 804 crore in January this year. The value of UPI transactions has increased from just 1,700 crore to 12.98 lakh crore during the same period.

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Updated: 30 Mar 2023, 05:52 PM IST
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