The National Payments Corporation of India (NPCI) has announced that it will be implementing an interchange fee of up to 1.1% on merchant transactions made through the Unified Payments Interface (UPI) from April 1, 2023.
The NPCI is a non-profit organization that manages UPI, a popular digital payments platform in India.
The new fees will be applicable for transactions made through Prepaid Payment Instruments (PPIs) if the transaction amount exceeds INR 2,000.
What is interchange fee:
The interchange fee is the fee paid by the acquiring bank to the issuing bank for the acceptance of card-based transactions. In the case of UPI, the fee will be paid by the merchant for the acceptance of transactions made through the PPIs. The NPCI has clarified that regular UPI payments made from bank account to bank account will not be subjected to any charges.
The Interchange fee will vary for different merchant categories:
The interchange fee for different merchant categories will range from 0.5% to 1.1%, with a cap applied in certain categories. The fee for telecom, education, and utilities/post office transactions will be 0.7%, while supermarkets will be charged 0.9% of the transaction value. Insurance, government, mutual funds, and railways will incur a 1% charge, while fuel and agriculture will have a fee of 0.5% and 0.7%, respectively.
The NPCI has stated that the pricing will be reviewed on or before September 30, 2023. This move comes after the Finance Ministry had stated in August 2022 that it was not considering levying any charges on UPI transactions, as it considers UPI a digital public good that provides immense convenience for the public and productivity gains for the economy.
The ministry had stated that any concerns of service providers for cost recovery would have to be met through other means.
This move by the NPCI has been met with mixed reactions, with some industry experts expressing concerns that it may lead to an increase in transaction costs for merchants and consumers.
However, others have argued that the fee is necessary for the long-term sustainability of UPI, and that it will encourage innovation and competition in the digital payments space.