Upcoming Fee Changes for UPI Payments and Their Impact on Merchants and Users
The National Payments Corporation of India (NPCI) has recently announced that it will start charging a fee of up to 1.1% for UPI transactions made through prepaid payment instruments (PPIs) for transactions exceeding Rs. 2000. This news has set off a flurry of discussions and concerns among merchants and users alike. In this article, we will explore the implications of these changes and clarify any confusion surrounding the upcoming fee structure.
What Are UPI Payments and PPIs?
UPI (Unified Payments Interface) is a mobile-based payment system that enables users to make direct payments from one bank to another without the need for an intermediary like an agent or a service provider. It supports various funding sources, including bank accounts, credit cards, and prepaid instruments like PPIs. PPIs include magnetized chips, smart cards, vouchers, and wallets. Examples of PPIs include popular mobile wallets like Paytm, PhonePe, and Amazon Pay, as well as vouchers from companies like SODEXO.
Impact on Prepaid Payment Instruments (PPIs)
According to the NPCI circular dated March 24, 2023, the 1.1 percent interchange fee will only be levied on transactions made by merchants through PPIs that exceed Rs 2000. For context, the average merchant ticket size for UPI transactions is around Rs 700. Given this, the pricing changes are not expected to impact the majority of users significantly. The NPCI has confirmed that typical UPI payments between bank accounts will remain free of charge, as has been the case since the implementation of the Reduced Maximum Discounted Rate (MDR) on January 1, 2020.
Merchant and User Implications
Merchants who accept UPI transactions through PPIs that exceed Rs 2000 will need to bear the interchange fee. However, it’s important to note that the NPCI has stated that these fees are only applicable to PPI transactions, and not to UPI payments made directly between bank accounts. As a result, customers do not need to worry about any additional charges when using their bank accounts to make UPI payments.
Even for merchants using PPIs, the impact of the fee is likely to be marginal, as the average ticket size for UPI transactions is significantly lower than the Rs 2000 threshold. Additionally, the NPCI has indicated that these changes aim to incentivize the use of PPIs for larger transactions, which could potentially lead to a more diverse and robust digital payment ecosystem.
Frequently Asked Questions
Q: Will typical UPI payments between bank accounts incur any fees?
A: No, typical UPI payments between bank accounts will remain free, as mandated since the implementation of Reg Zero MDR on January 1, 2020. The NPCI has clarified that the new interchange fees are only applicable to PPI transactions.
Q: Are there any examples of merchants illegally charging customers additional fees for credit card transactions?
A: Yes, there have been instances where certain merchants have illegally charged customers additional fees for card transactions. However, this is not a common practice and users should be cautious and report any such irregularities to the relevant authorities.
Conclusion
The NPCI’s decision to introduce interchange fees for UPI transactions through PPIs that exceed Rs 2000 is a step towards a more dynamic and diverse payment landscape. While there may be a slight impact on certain transactions, the overall impact on UPI users and the majority of merchant transactions is expected to be minimal. The free nature of typical UPI payments between bank accounts continues to provide a convenient and cost-effective solution for users.
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