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The National Payments Corporation of India’s (NPCI) recent circular on interchange fees of 1.1% on UPI transactions via prepaid payment instruments (like wallets and credit cards) has left users confused.

Starting April 1, an interchange fee of 1.1% will be levied on UPI transactions of over Rs 2,000 made through wallets. But, nothing is chargeable for users.

For example, if you are making a UPI payment at a store via a wallet, the wallet provider will receive the applicable interchange fee from the store itself. This is similar to how merchants are charged for payments made by users via credit cards—also known as merchant discount rate (MDR).

The issuer of prepaid instruments will also be required to pay 15 basis points (bps) of the fee to the remitter bank for loading a transaction value above Rs 2,000, the circular said.

NPCI on Wednesday clarified that these charges are applicable only for merchant transactions made through PPIs. No charges will be levied on normal UPI payments, i.e., “bank account-to-account transactions or transactions between a bank and the prepaid wallet through UPI”. 

The move would benefit customers who will now have the choice of using any bank account, RuPay Credit card, and prepaid wallet on UPI-enabled apps.

“Recent regulatory guidelines, the PPI Wallets have been permitted to be part of an interoperable UPI ecosystem. In view of this, NPCI has now permitted the PPI wallets to be part of an interoperable UPI ecosystem. The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers,” said NPCI. 

Additional revenue for players 

The NPCI announced wallet interoperability guidelines on March 24, allowing customers to make payments on every UPI QR code and online merchant where UPI payments are accepted. 

Analysts said that the latest guidelines could significantly improve the wallets and open avenues for additional revenue, particularly, for Paytm Payments Bank—the largest issuer of KYC wallets with over 100 million users. 

“If well adopted by Paytm wallet users/merchants, the benefit could be meaningful,” Morgan Stanley said in a report. The brokerage firm added that Paytm Payments Bank would have to pay 15 bps as the cost of wallet-loading service charges to the remitter bank (for transactions above Rs 2,000 done via UPI). 

Akash Sinha, Co-founder and CEO of Cashfree Payment, said, “Interoperability will significantly ease collection for them [merchants] since it will allow them to accept wallet payments regardless of the wallet used by the customer. Further, it will eliminate the need for specific integrations with a particular wallet to accept payments on a website since customers can also pay via UPI or card infrastructure. This will increase the payment alternatives for customers.” 

Consumers having more choice and flexibility in how they transact with merchants would lead to increased adoption of digital payments and, ultimately, drive financial inclusion and economic growth, said Rajsri Rengan, India Head of Development, Banking, and Payments at FIS.

The move has received a positive response from the payments industry as it would bring in more revenue for service providers.

“The decision is expected to bring in much-needed revenue for payment service providers, who are struggling to maintain profitability due to the low transaction fees on UPI transactions. The increased charges on high-value UPI transactions are also expected to encourage merchants to adopt other payment modes, such as credit and debit cards, which have higher transaction fees,” said Ashwin Chawwla, Founder and Managing Director, Escrowpay.