Will UPI payments now attract charges? Decoding NPCI’s interchange fee on UPI transactions via prepaid payment instruments

• NPCI has issued a circular on interchange fees on UPI transactions done via prepaid payment instruments.
• Additionally, the circular also mentions that wallet providers like PhonePe, Paytm and others will have to pay a fee when users load more than ₹2,000 into their wallets via UPI.
• Here’s a complete breakdown of which UPI payments will attract charges, who will have to pay these charges and more.

The National Payments Corporation of India (NPCI) has introduced an interchange fee of up to 1.1% on UPI transactions done via prepaid payment instruments (PPI) from April 1.

The charge will be applicable on payments of over ₹2,000, but it has caused confusion amongst users as to who will be charged for these transactions and which payment modes will be chargeable.

“The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers, and it is further clarified that there are no charges for the bank account to bank account based UPI payments (i.e. normal UPI payments),” NPCI said in a statement on Wednesday.

We try to cut through the jargon and decode exactly what will happen from April 1 and how it will affect you.

What does the NPCI circular say?

According to the NPCI circular, first reported by CNBC-TV18, UPI transactions done via prepaid payment instruments will now attract an interchange fee of up to 1.1%.

This fee will be applicable on transactions of over ₹2,000. This will also be applicable on loading money in wallets via UPI.

Will this affect payments to friends, family or any other person via UPI?

Payments made via UPI to friends, family or any other individual or a merchant’s bank account will not be affected by this interchange fee.

Essentially, peer-to-peer (P2P), and peer-to-peer-merchant (P2PM) transactions remain unaffected.

You will be able to send money from your bank account to another person or merchant’s bank account via UPI without any charges.

What is a prepaid payment instrument?

Wallets, preloaded gift cards are prepaid payment instruments (PPI).

Some examples of wallets include Paytm Wallet, PhonePe Wallet, Amazon Pay, Freecharge Wallet, etc. Gift cards include

What is a PPI payment via UPI?

A PPI payment via UPI means a transaction done via a wallet, like Paytm Wallet, through a UPI QR code.

For instance, if you have money in your Paytm Wallet and want to make a payment via a merchant’s UPI QR code, then on transactions above ₹2,000, an interchange fee of up to 1.1% will be levied.

What is the interchange fee?

Interchange fee is a fee that is charged by the receiver bank/payment service provider to the merchant.

Who will pay these charges?

For example, if you are making a PPI payment via UPI at a store, and the QR code is that of PhonePe, then PhonePe will receive the applicable interchange fee from the merchant.

This is similar to how merchants are charged for payments made by users via credit cards – also known as merchant discount rate (MDR).

Users will not be charged for these transactions.

In case of loading money in wallets via UPI, you will not have to pay any charges just yet – that is of course until wallet providers like Paytm and PhonePe, among others, decide to pass on the charge to users.

Which transactions will be affected because of this?

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