Interchange fee of 1.1% on UPI transactions above ₹2,000 may be similar to IMPS charges

The NPCI's wallet interoperability norms have gone live from April 1st. Amidst allowing prepaid payment instruments (PPI) wallets to be part of an interoperable UPI ecosystem, the NPCI has also fixed an interchange fee of 1.1% for using PPIs for transactions above ₹2,000 using UPI. Although the overall move is significantly beneficial for customers, however, the charges of 1.1% are likely to be similar to those transactions carried through IMPS for UPI merchants henceforth.

NPCI's interoperability guidelines make PPI wallets more appealing to customers. The move is likely to eliminate the need for carrying multiple cards on the customers' front and that as result would minimize the danger of fraud and theft owing to the exposure of card numbers.

It needs to be noted that the 1.1% interchange fee is not applicable to customers but only to UPI merchants.

Anup Nayar, CEO- domestic, In- Solutions Global Ltd said, as per the NPCI circular, the interchange fee is applicable only for PPI merchant transactions and there is no charge to customers. This means that 99.9% of the traditional bank-to-bank transactions will be free of charge like earlier.

Nayar added, "With this move, consumers can choose the payment method that suits their needs best and use any bank account, RuPay credit card and prepaid wallet on UPI-enabled apps. It will eliminate the need to carry a physical card and enable them to switch between different payment apps or wallets. As a result, transactions will become more convenient."

In addition, he said, "the availability of more options will increase competition among banks and wallets, which will ultimately benefit the customers in terms of better offers, rewards, cashback, and services."

Explaining further on the amount of charges levied on UPI transactions in regards to merchants due to the 1.1% interchange fee, Mahesh Shukla CEO & Founder of PayMe, an interchange fee of up to 1.1% will be applicable on merchant UPI transactions from 1 April. However, the payments body has clearly stated that no charges will be levied on normal UPI payments of customers, which are mostly bank account-to-bank account transactions.

Shukla further added that the payments body has clearly stated that no charges will be levied on normal UPI payments of customers, which are mostly bank account-to-bank account transactions. The Finance Minister has earlier stated that the UPI is a digital public good, which is convenient for the public and productive gains for the economy; hence, will remain non-chargeable. The NPCI’s move was also in line with the Finance Minister’s statement, and the interchange fees will not be applied in the case of peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions.

"NPCI has only levied charges on the merchant UPI transactions since the fund transfers through it are similar to Immediate Payment Service (IMPS); hence the charges could be similar to those on IMPS fund transfers," Shukla said.

Also, backed by NPCI, IMPS provides robust and real-time fund transfer which offers an instant, 24X7, interbank electronic fund transfer service that could be accessed on multiple channels like Mobile, Internet, ATM, and SMS. IMPS is an emphatic service that allows transferring of funds instantly within banks across India which is not only safe but also economical. Currently, on IMPS, 706 members are live which includes banks and PPIs.