NPCI’s Interchange Fee For PPI-Based UPI Transactions

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The National Payments Corporation of India (NPCI) issued a circular on March 24, announcing that Unified Payments Interface (UPI) transactions made through prepaid payment instruments (PPI) to merchants of above INR 2,000 would attract an interchange fee of 1.1%. However, the fee would not apply to peer-to-peer (P2P) and peer-to-peer-merchants (P2PM) transactions, which are defined as transactions with small merchants projecting monthly inward UPI transactions of INR 50,000 or less. The interchange fee will be lower for certain types of merchants, and PPI issuers will have to pay a wallet loading service charge of 15 basis points (bps) to the remitter’s bank for loading over INR 2,000 in the wallet. The NPCI clarified that bank account-to-account UPI transfers will remain free for customers and merchants, and the interchange charges will only apply to PPI merchant transactions. Wallet issuers may face challenges with the wallet loading service charge, which could cost them tens of crores, largely going to banks.  According to the report by Citigroup, wallet issuers could potentially incur charges of INR 100 Cr, which would largely go to banks. This could lead to an increase in operational costs for wallet issuers, which could ultimately be passed on to consumers.

Moreover, merchants who accept payments via mobile wallets may also have to bear additional costs due to the interchange fee of 1.1% on transactions above INR 2,000. This could discourage merchants from accepting payments via mobile wallets, thereby affecting the adoption of digital payments.

However, it is important to note that the NPCI has clarified that the interchange charges are only applicable to PPI merchant transactions and not bank account to bank account UPI payments, which account for more than 99.9% of total UPI transactions. So, the impact of these charges on wallet issuers and merchants may not be as significant as feared.