Starting April 1, The National Payments Corporation of India (NPCI) will levy an interchange fee on Unified Payments Interface (UPI) transactions of more than Rs 2,000 through Prepaid Payment Instruments (PPIs). This fee will be reviewed by September 30, 2023.

PPIs are digital wallets that allow users to store money and make payments, while UPI enables users to transfer money between bank accounts instantly using their mobile phones. The interchange fee is charged by one bank to another bank for processing a transaction, and in the case of UPI transactions, it is paid by the bank of the merchant to the bank of the payer.

The new fee will only apply to merchants who accept payments above Rs 2,000 using PPI, such as mobile wallets. Individual users do not charge any additional fees for personal transactions using UnionPay International. The proposed interchange fee aligns with the recommendations of the Committee on Payments and Market Infrastructures and the World Bank, which suggested an interchange fee of up to 1.15% on UPI transactions.

The NPCI has allowed prepaid payment instruments (PPI) wallets to be part of the interoperable UPI ecosystem, and the new interchange charges will only apply to PPI merchant transactions. The new fee structure aims to incentivise PPI providers to promote UPI transactions for higher amounts, increasing the average transaction value and reducing the overall cost of payment systems in India.

Experts have praised the NPCI circular that mandates full interoperability of KYC wallets for all UPI merchants, viewing it as a crucial development for advancing digital payments in India. By allowing wallets to support a broader range of payment-use cases, the guidelines are expected to enhance their attractiveness to customers.

However, it is noteworthy that the new fee structure will only apply to PPI merchant transactions. Individual users making personal transactions using UPI will not be charged any additional fees. The NPCI aims to increase the average transaction value of UPI transactions, and this move is expected to reduce the overall cost of payment systems in India.