The National Payments Corporation of India (NPCI) has suggested unified payments interface (UPI) transactions made via prepaid instruments like wallets, or cards should carry an interchange fee of 0.5% to 1.1% for payments made to online merchants, large merchants, and small offline merchants above Rs 2,000, say media reports.
Currently, there are no charges on UPI transactions at all, although the UPI ecosystem incurs a cost of Rs 2 for every transaction of Rs 800.
While UPI is creating new records for the number of transactions every day and the amounts transacted, most service-providers such as banks, merchants and even NPCI itself are not very happy about having to provide free service.
While media reports suggest that NPCI recommendation seems to be made internally, it would be up to the Union ministry of finance or Reserve Bank of India (RBI) to accept or reject it, especially considering the ministry’s clarification last year that no service charge would be levied on UPI transactions.
Quoting a circular allegedly issued by NPCI, Economic Times (ET) says, “Using prepaid payment instrument (PPIs) on UPI from will attract interchange at 1.1% on transaction value for amounts over Rs 2,000.”
“The PPI issuer will pay about 15bps (basis point) as a wallet-loading service charge to the remitter bank, and an interchange is not applicable in terms of peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions between bank account and PPI wallet,” says a report from CNBCTV18.
According to a report from BloombergQuint, the interchange fee is typically associated with card payments and is levied to cover the costs of accepting processing, and authorising transactions. “The fee will not be applicable to person-to-person transactions or person-to-merchant transactions between a bank and the prepaid wallet. While the 1.1% interchange fee is a broad levy, certain types of merchants will also be eligible for a lower interchange levy. For instance, payments made to fuel service stations via UPI using a prepaid instrument will only carry an interchange of 0.5%,” the report says.
According to the reports, the interchange fee ranges between 0.5% to 1.1%. It suggested the lowest interchange fee of 0.5% should be applied to fuel payments. Transactions above Rs2,000 related to telecom, utilities, post office, education, and agriculture, should attract an interchange fee of 0.7%. For UPI transactions at supermarkets and for mutual funds, government, insurance and railways, the fee should be 0.9% and 1%, respectively.
The interchange would not be applicable in terms of peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions between bank accounts and prepaid payment instrument (PPI) wallets, the reports say.
Levying interchange fees on UPI transactions would be the first step to making the ecosystem viable. The UPI platform does not charge merchant discount rate (MDR) to merchants, although it is charged for processing payments on debit and credit card transactions. The MDR is capped at 0.9% for debit cards.
For using credit cards on UPI, there are no charges up to Rs 2,000. Cards offered by Visa and MasterCard, typically, have an MDR of 200bps (basis points) for credit cards and 50bps for debit cards. Credit cards from RuPay charge a lower MDR, while there is no MDR for its debit cards.
