Interchange Fee on UPI transactions implemented through mobile wallet. UPI now will attract an interchangeable fee. Yesterday i.e., 29th March 2023, the National Payments Corporation of India (NPCI) shared a notification in media. It was about using Prepaid Payment Instruments (PPIs) for transactions through UPI. Which will attract an interchange fee, if the transaction is more than ₹ 2,000 via mobile/digital wallet. What was it, and why did the confusion start?

Interchange Fee on UPI (NPCI)

To understand it we have to make clear basic terminology, so that issue get clear. Because it created a confusion in public, so National Payments Corporation of India (NPCI) had clarified it with releasing a clear notification. Specific terminology clarified the confusion. After reading this post you will understand the interchange fee issue on UPI.

For it lets make clear few terminology used in notification. These are following terms which we will see in to post and meaning of the notification. 

1. Prepaid Payment Instruments (PPIs) Wallets
2. Interchangeable fee
3. Peer-to-Peer (P2P) and Peer-to-Peer-Merchant (P2PM)
4. Customer and Merchant
5. Remitter
6. Interoperability of Digital/Mobile Wallets

A post on Twitter and it’s reply by NPCI in reference to Interchange Fee on UPI

Prepaid Payment Instruments (PPI) Wallets

A Prepaid Payment Instrument (PPI) is a electronic payment method that allows users to store and spend money without the bank account. PPIs are commonly known to the people as a “digital wallets” or “mobile wallets“. Below are given some examples of popular mobile wallets, with which you are familiar:

1. Paytm
2. Google Pay
3. PhonePe
4. Amazon Pay
5. Mobikwik
6. Freecharge
7. BHIM (Bharat Interface for Money)
8. Airtel Money
9. Jio Money
10. Oxigen Wallet

These PPI (mobile wallets) have their own features and benefits. One can use it for bill payments, house rent payments, mobile recharges, tickets bookings, and general shoppings, etc.

Mobile Wallet Interchange Fee

When a customer uses a mobile wallet (of any entity; GPay, Paytm, Amazon Pay, Airtel Money, Jio Money, etc.) to make a payment, this payment is processed through a payment gateway, as you know. So interchange fee is paid by the mobile wallet provider (one that customer using such as, GPay, Paytm, Amazon Pay, Airtel Money, , etc.) to the payment network that processes the transaction, authorized by NPCI. 

Here, point to focus is “mobile wallet” or “digital wallet” only. If you are using any of these two. On the other side, interchange fee not only cover the costs of processing a payment but also to the cost of the network’s infrastructure and fraud prevention measures too.

NOTIFICATION BY NPCI ON TWITTER ABOUT

Interchange Fee on UPI

#Q. What challenge is with interchange fee?

Merchants usually pass this cost of the interchange fee to consumers in the form of higher prices for goods and services online or asking cash payment.

#Q. What is it means “bank account- to-bank account based UPI payments”?

It refers to a type of electronic payment that enables users to transfer money directly from ‘one bank account to another bank account” using the Unified Payments Interface (UPI) platform.

UPI is a payment system developed by the National Payments Corporation of India (NPCI) that facilitates instant payments between bank accounts in India. With UPI, no need for details such as bank account numbers or IFSC codes.

Interchange Fee on UPI few Sample of UPI ID

As per the PPI you are using and creating the UPI ID on your mobile app. An example of UPI ID is given below. You can use this UPI ID to transfer and receive the money from one bank to any other bank. For this no bank details such as account number, IFSC code, etc. are required. 

1. xyz123@okicici
2. xyz123@patm
3. xyz123@ybi
4. xyz123@okaxis
5. xyz123@upi

Bank account-to-bank account based UPI payments are secure and convenient, and have gained popularity in India due to their ease of use and real-time processing capabilities. After covid-19 this service is promoted by the Government of India and are widely used for a variety of transactions. It includes peer-to-peer transfers, electricity bill, credit cards bill, house rent payments, and merchant transactions from vegetables vendors to mega stores.

NPCI clearly mentioned that bank account-to-bank account based UPI payments are free, there is no interchange fee.

#Q. what is it mean “Interchange will not be applied in the case of peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions.”?

The NPCI have clear statement in his notification shown below to make this doubt clear. 

I hope now you have clear this point.

The Peer -to-Peer (P2P) transactions refer to the transfer of funds between two individuals using UPI, such as sending money to a friend or family member.

Also, P2PM transactions means the transfer of funds from a customer to a merchant using UPI, such as paying for goods or services at a merchant’s store.

So, matter is related to the mobile wallets, because wallets are similar place as your bank account, from there you can collect money or pay to the other. 

#Q. What is it mean “PPI issuers will be required to pay 15 basis points (bps) to the remitter bank as a wallet-loading charge for transactions of over ₹ 2,000. “?

It means company that issue of Prepaid Payment Instruments (PPIs’ mobile wallets), will have to pay a fee of 15 basis points to the concerned bank of mobile wallet user, from which the money is loaded in to the wallet, if the transactions amount above the value of ₹2,000.

Now here, it is clear whether the person is customer or merchant, if that loads or transfer money in wallet over ₹ 2,000, PPIs issuer will have to follow this rule. Means, PPIs have to pay the wallet-loading charge of 15 bps to the remitter bank, for transactions over ₹2,000.

A basis point is a unit equal to one-hundredth of one percent (0.01%). Therefore, 15 basis points is equal to 0.15% of the transaction value. Means 2000*0.15/100= ₹ 3.00/

#Q. What is remitter means?

In the context of digital payments, the remitter is “the person” who loads money into a mobile wallet from a bank account.

For example, if you transfer money from your bank account to your mobile wallet of paytm or amazon pay or in any other service providers, you are the remitter. While your bank is the sender of the funds. Company that provide mobile wallet is receiving the funds and is responsible for processing the transaction and crediting the money to your wallet.

#Q. What is it means”interoperability of digital wallets”?

It means that different digital/mobile wallets or prepaid payment instruments (PPIs) can seamlessly exchange funds and conduct transactions with each other. In other words, you can say that customers can use their wallets to make payments to anyone who are using a same or different payment app.

“In India, the Reserve Bank of India (RBI) has mandated interoperability of digital wallets and PPIs, which means that all licensed payment providers must enable their customers to transfer funds to and from other payment providers, and also to conduct transactions with merchants who use other payment apps or wallets. This has been a significant step towards promoting digital payments and achieving a more inclusive financial ecosystem in India.”

#Q. Does UPI interchange fee will impact digital wallet payments?

No, in the beginning it seems a problem to accept but bank is charging for their services that is required to maintain the services and security. Also, wallet is a facility given by the PPI to the user.

INTERCHANGE FEE ON UPI CONCLUSION:

1. It is clear that the National Payments Corporation of India (NPCI) does not charge any transaction fee for UPI payments. It means there is no interchange fee for UPI transactions. This applies to all UPI payment providers, including GPay, Paytm, Amazon Pay, PhonePe, etc. There are no charges for scanning the QR code and paying directly from your bank account, rather than using a wallet.
2. However, if you choose to use a wallet and add funds (above ₹2000) or make a payment to a merchant from your wallet, then service charges will apply according to the standards set by NPCI.