Will online payments become costlier? NPCI sets 1.1% interchange fee on UPI payments

“Based on annual wallet payment transactions of Rs 2 lakh crore in February 2023, we estimate that wallet charge fees could exceed Rs 100 crore across all wal

The National Payments Corporation of India (NPCI) has notified that interchange fees of up to 1.1 percent will be applied on merchant UPI (Unified Payments Interface) transactions made using Prepaid Instruments (PPI) - wallets or cards - with effect from April 1.

UPI payments above INR 2000 will be charged to online merchants, large merchants and small offline merchants. However, in some categories of merchants, lower interchange fees may be charged starting at 0.5 percent, depending on the applicable cap, the NPCI said.

The exchange will not apply to P2P and P2PM transactions between bank accounts and PPI wallets. However, PPI issuers will be required to pay a 15 basis point "wallet load service fee" to the sending bank to load more than Rs 2,000 into the prepaid wallet.

This interchange pricing will be reviewed on September 30, 2023, according to the NPCI circular.

“Based on annual wallet payment transactions of Rs 2 lakh crore in February 2023, we estimate that wallet charge fees could exceed Rs 100 crore across all wallet issuers (assuming 30 percent of wallet transactions qualify given the transaction volume rule and an estimated 60 percent UPI on wallet load), and will be paid to banks,” Citi Research said in a note.

Interchange Fee

Telecom 0.70%
Utilities 0.70%
Education 0.70%*
Agriculture 0.70%**
Supermarket 0.90%
Convenience Store     1.10%
Mutual Funds 1%*
Insurance 1%**

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Additional revenue

Paytm Payments Bank, the largest KYC wallet issuer with over Rs 10 crore users, said its wallets will be accepted at all UPI QR and online merchants with interoperability enabled. It will also earn additional revenue from exchanging Paytm Wallet transactions made for merchants acquired by other payment service providers, payment gateways, and payment aggregators.

“The bank will pay 15 bps for adding more than INR 2,000 and in turn earn 15 basis points when any other wallet uses the bank to add more than INR 2,000 using UPI,” the company said.

Last week, the NPCI also asked UPI merchants and service providers to improve interoperability by clearly and prominently displaying a UPI payment option, by September 30, 2023.

Industry insiders said that the interoperability of wallets with UPI is increasing the reach, function, appeal and use cases of the wallets, which can now be used on QR codes of around Rs 25 crore as of February 2023, and they added that it will also increase the payment alternatives for customers as they will also be able to pay via UPI or cards.

"Many merchants use wallets to accept payments from instance, at PoS. Interoperability will make their collections much easier, as it will allow merchants to accept payments with wallets regardless of what they are doing," said Akash Sinha, Co - Founder and CEO of Cashfree Payments.

Also Read: 10 big income tax rule changes from 1 April 2023 for taxpayers. Details here

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