The Unified Payment Interface (UPI) was developed by the National Payments Corporation of India (NPCI). UPI enables real-time transfers between personnel accounts, banks, and merchant accounts via mobile devices. Additionally, it makes instant bank-to-bank payments possible, which makes online payments simple and convenient. In India, it is the most popular payment method.
The NPCI has announced new guidelines for UPI transactions that will take effect on April 1st, 2023. These regulations modify transactional charges and limits. The primary goals of these new regulations are to encourage digital transactions and lighten the regulatory burden on banks. In this article, we will go over the new rules and charges for UPI Transaction in detail.
Insights of the UPI Transaction Charges
As of 1 April 2023, an additional interchange fee of 1.1 % will apply to transactions made by merchants (the person or company receiving the payment) using prepaid payment instruments (PPIs) – wallets or cards.
An interchange fee is the fee that the receiver bank or payment service provider charges the merchant.
In simple terms, the charge will happen if a customer has a wallet from one company and pays a merchant who has a wallet from another company.
However, there are no fees for normal customer transactions or UPI payments from the bank account to the bank account.
What is a PPI in UPI?
The Prepaid Payment Instrument (PPI) in UPI refers to digital wallets that enable individuals to store funds and make real-time online payments. Additionally, PPIs include wallets, smart cards, preloaded gift cards, vouchers, and magnetic chips.
When a transaction is completed using a wallet, and a UPI QR code is scanned, PPI payments are processed.
What are the new charges and rules for UPI Transaction?
- The interchange fee varies depending on the merchant category. It ranges from 0.5% to 1.1%, with a maximum rate applicable in certain categories.
- For telecom, education, and utilities/post office, the interchange fee is 0.7% of the transaction value, while for supermarkets it is 0.9%. Insurance, government, mutual funds, and railroads will be taxed at approximately 1%, while fuel and agriculture will be taxed at 0.5% and 0.7%, respectively.
- According to NPCI, exchange fees are only applied to PPI merchant transactions; customers are not charged.
- This tax was implemented to help cover the cost of connectivity or interchangeability between two wallets.
- NPCI has permitted PPI wallets to be a part of the interoperable UPI ecosystem and has imposed a 1.1% fee on PPI-based UPI transactions exceeding 2,000.
Customers paying through wallets will have to pay the interchange fee?
Customers who use PPIs to make UPI payments for peer-to-peer (P2P) and peer-to-merchant (P2M) transactions will not be charged interchange fees. P2P transactions refer to money transfers over UPI between two people or individual accounts. P2M is where customers make UPI-based payments to merchants for their purchases.
One bank charges another bank the interchange fee for processing a transaction. In the case of UPI transactions, the merchant bank (the business or individual receiving payment) pays the interchange fee to the payer bank.
Therefore, interchange fees only apply to PPI merchant transactions, and customers are not charged. When the UPI is linked to a bank, customers or users are exempt from paying interchange fees for UPI payments. When the UPI is connected to a wallet, merchants will pay the interchange fee. Customers who make UPI payments to family, friends, or other individuals, as well as the merchant’s bank account, will not be subject to the interchange fee.
Who will pay the interchange fees?
Merchants are responsible for covering the cost of the interchange fees charged by the payment card networks and digital wallet providers. The interchange fee applies to small merchants; consequently, it will not affect them. The medium category merchants will only be required to pay interchange fees on transactions exceeding Rs. 2,000. However, the payment of interchange fees for high-value transactions will depend on whether merchants choose to absorb the higher costs or pass them on to customers.
Consequently, the NPCI has instructed PPI issuers to pay 15 basis points in wallet-loading service charges to remitter banks for wallet recharges exceeding Rs. 2,000.
For instance, if you load your wallet with more than Rs. 2,000, the wallet company will pay a 0.15% wallet-loading service fee to your bank.
Therefore, there will be no additional charge for recharging your wallet to conduct UPI transactions.
What does this mean for the economy?
This development might result in more chances for competition, growth, and innovation. Consumers will have more options and flexibility when making purchases from merchants thanks to improved payment system interoperability. This could lead to greater adoption of digital payments, which would promote financial inclusion and economic growth.
Conclusion
The National Payments Corporation of India has announced the new UPI transaction charges with effect from 1st April 2023. Although the new rules may have some effect on users and merchants, they are essential for ensuring the safety and security of UPI transactions. Users and merchants should be aware of the new regulations and make sure they abide by them to prevent any inconvenience.
FAQs
1. What are UPI Transaction Charges?
Ans: As of 1 April 2023, an additional interchange fee of 1.1 % will apply to transactions made by merchants (the person or company receiving the payment) using prepaid payment instruments (PPIs) – wallets or cards.
An interchange fee is the fee that the receiver bank or payment service provider charges the merchant.
In simple terms, the charge will happen if a customer has a wallet from one company and pays a merchant who has a wallet from another company.
However, there are no fees for normal customer transactions or UPI payments from the bank account to the bank account.
2. When making a UPI payment, will I be charged 1.1%?
Ans: No. This 1.1% fee will only apply to merchants or businesses, they will only be charged if the customer pays using a UPI ID linked to a pre-paid instrument such as a wallet.
3. What is the definition of PPI merchant transactions?
Ans: PPI merchant transaction refers to a digital payment made at a merchant’s location using a Prepaid Payment Instrument (PPI). The transaction is processed through the platform of the PPI issuer and is linked to the UPI ID of the merchant.
4. Are there any fees associated with UPI transactions?
Ans: There are no fees associated with bank account-based UPI payments (normal UPI payments) for customers with bank accounts. According to the National Payments Corporation of India (NPCI), interchange fees were only introduced for PPI merchant transactions, and there are no fees for consumers.
5. What are the current Charges for UPI Transactions?
Ans: Currently, UPI transactions do not incur any fees. The government has mandated a zero-charge framework for UPI transactions till now. As a result, neither users nor merchants were charged for UPI transactions.
