Interchange fee introduced by NPCI is only for PPI Merchant Transactions and not for Regular P2P transactions…

Many social media users have claimed that UPI transactions over Rs.2000 will be charged 1.1% as interchange fee from 1 April 2023.

However, we found that UPI transactions remain free of cost. Only PPI merchant transactions over Rs.2000 will be charged 1.1% as interchange fee.

Social Media Narrative

View post here – Instagram | Archived Link

In the Instagram post, it is claimed that the Government has imposed charge on UPI transactions. The viral post has garnered over 63K likes in just 5 hours. Many users who commented on the post expressed resentment and assumed that every UPI transactions will be charged henceforth.

We can also see a screenshot of an India Today article whose visible headline reads, “UPI transactions of more than Rs.2000 to be charged 1.1 per cent starting April…” So, is government going to charge 1.1 percent on every UPI transactions over Rs.2000? Let’s find out.

Fact Check

We checked for the India Today article whose screenshot given in the poster. We found the article to be updated following a clarification from NPCI. However, the archived version of the old article is available and you can see that the headline in the article is similar to that seen on the poster.

The headline of the article too mentions only some UPI transactions over Rs.2000 will be charged at 1.1 per cent. The headline was updated following the clarification from NCPI.

Thus, the updated article clarifies that 1.1 per cent will be charged only on payments of Rs.2000 or more made from digital wallets (PPI) to UPI IDs. The article also clarifies, “The fee will be levied on the merchant side. This means merchants may or may not choose to pass on the extra fee to consumers.”

The NCPI clarification mentioned in the article was released by NCPI on 29 March 2023. The press release by NCPI clarifies that customers will not be charged with any fee and the recent regulatory guidelines are only for Prepaid Payment Instruments (PPI Wallets). Their statement is as follows:

“Recent regulatory guidelines, the Prepaid Payment Instruments (PPI Wallets) have been permitted to be part of interoperable UPI ecosystem. In view of this NPCI has now permitted the PPI wallets to be part of interoperable UPI ecosystem. 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).”

You can read the complete press release from NCPI’s website below:

To understand this, we have to understand the two types of UPI transaction: 1. Person-to-Person (P2P) and Person-to-Merchant (P2M). When I transfer money from my bank account to another person’s bank account, the transaction is called P2P transaction.

Whereas, if I pay to a merchant after buying an item from his shop using UPI, then the transaction is called P2M transaction. Both these transactions are exempted from this interchange fee as the transfer of money is from my bank account to another person’s bank account.

NPCI now allows UPI interoperability for PPIs like PayTM wallets, credit cards, etc. This means, I can now use my digital wallet or credit card with UPI for payment. Therefore, instead of my bank account the money will be transferred by my wallet or credit card. This transaction is called PPI merchant transaction.

PPIs are instruments of payments that facilitate buying of goods and services, including the transfer of funds, financial service and remittances, against the value stored within or on the instrument. E.g. Credit Cards, Metro Smart Cards, Digital Wallets like PayTM, etc. Click here to know more about PPIs and its types.

Interchange fee is a fee that is paid by wallet/credit card issuers like Gpay, PayTM, PhonePe, etc. to banks or Payments banks for accepting, processing and authorizing transactions. Credit Card issuers usually charge interchange fee to merchants whenever their card is used at their shops. Similarly, if someone pays more than Rs.2000 through PayTM wallet to a merchant acquired by some other payment service provider or banks, then the merchant’s payment service provider/bank will have to pay 1.1% interchange fee to PayTM.

PayTM Payments Bank has explained this process in a blog published on their website. The blog explains, “The Bank will earn interchange revenue from merchants acquired by other payment service providers (PSP), payment gateways (PG) and payment aggregators (PA).”

In addition to this, there will be a wallet loading charge for wallet services like PayTM, Amazon Pay, etc. This means if you load more than Rs.2000 to your digital wallet from your bank account, then your wallet issuer will have to pay 15bps (basis points = 0.01%) of charge to your bank.

Conclusion

The interchange fee of 1.1% will not be charged on all UPI transactions. The NCPI has clarified that the interchange fee will only be charged for merchant transactions using PPI (Wallets, Credit Cards, etc). These transactions are only 0.1% of the total transactions carried out using UPI. The remaining 99.9% of the transactions that involves transfer of money for one bank account to another via UPI are free.