The National Payments Corporation of India (NPCI) has proposed an interchange fee of up to 1.1 per cent for transactions made through Prepaid Payment Instruments (PPIs) on Unified Payments Interface (UPI) transactions exceeding Rs 2,000. This move is aimed at increasing revenue for banks and payment service providers, who have been facing high costs associated with UPI transactions. The interchange pricing will be reviewed by September 30, 2023.
For context, UPI is a widely used payment system in India that enables instant money transfers between bank accounts via mobile phones. PPIs, on the other hand, are digital wallets that enable users to store money and make payments. Some popular PPIs in India are Paytm, PhonePe, and Google Pay. An interchange fee is a fee charged by one bank to another for processing a transaction. In the case of UPI transactions, the bank of the payer pays the interchange fee to the bank of the merchant.
However, this does not mean that users will be charged for UPI transactions. The new fee will only be applicable to merchants who accept payments over Rs 2,000 using PPIs. Individual users making personal transactions using UPI will not be charged any additional fees.
The NPCI believes that incentivizing PPI providers to promote UPI transactions for higher amounts will increase the average transaction value of UPI transactions, thereby reducing the overall cost of payment systems in India.
The proposed interchange fee is in line with the recommendations of the Committee on Payments and Market Infrastructures and the World Bank, which suggest an interchange fee of up to 1.15 per cent for UPI transactions.
The decision on whether to approve the recommendation will be made by the Reserve Bank of India (RBI), which regulates payment systems in India. If approved, this move could significantly impact PPI providers and merchants, who may need to adjust their fee structures to account for the interchange fee and face higher costs for accepting UPI payments. However, the NPCI believes that the long-term benefits of promoting higher-value UPI transactions will outweigh the short-term costs.