Charges introduced for UPI transactions using wallets (PPI)

[mohitmehra]

There has been some news coverage of merchant charges being introduced from April 1 for using Prepaid Payment Instruments (PPIs) on UPI. The news coverage indicates there will be an interchange of 1.1 per cent on transaction value for amounts over Rs 2,000.

Here is a video excerpt from CNBC:

PPI Charges For Merchant Transactions Using UPI From April 1, 2023 | NSE Closing Bell | CNBC-TV18

If the above video is not clickable, here is the link.

I could not find the circulars from NPCI yet. But here’s some context to better understand the implications:

Firstly

A Prepaid Payment Instrument (PPI) is a wallet you can add money into using your bank account, debit card, or credit card. There are a bunch of such wallets you may have used - Amazon, Paytm, Pockets (ICICI Bank), etc.

Secondly

The interchange fee is the amount charged to a merchant who is accepting payments from a customer. In most cases, the customer is not charged anything, irrespective of the charge the merchant is levied for the payment mode. For example, if you make a UPI payment, a merchant is charged zero for collecting the money, whereas for a credit card payment the charge can be as high as 3% of the transaction value.

Finally

Coming to the news coverage on the introduction of a 1.1% interchange for transactions using PPI on UPI.

Does this mean UPI transactions are no longer free for merchants?
No. Merchant interchange fee for UPI is still zero.

Usually, when you use a UPI ID, it is linked to your bank account. Funds are debited from your bank account and credited to the merchant’s bank account. However, if you (1) use a separate wallet, (2) have a UPI ID for that wallet, and (3) use it to make a transaction over Rs. 2,000, payments made using that UPI ID can cost the merchants a fee of 1.1% now.

This might be a non-event for most merchants. There are only these PPIs that have UPI IDs enabled:

Although the statistics on PPI using UPI were not available on NPCI’s website, I’m guessing the volumes would be incredibly low on this. Perhaps, the biggest might be @amazonpay from the list and would tweak their model if they find it difficult to charge merchants.

P.S. Given the news reports say NPCI recommends the 1.1% fee; I’m also assuming this may not be mandatory for PPIs to implement - just be an option.

[Akash_Shah]

@mohitmehra

This might be a non-event for most merchants. There are only these PPIs that have UPI IDs enabled:

@mohitmehra

Although the statistics on PPI using UPI were not available on NPCI’s website, I’m guessing the volumes would be incredibly low on this. Perhaps, the biggest might be @amazonpay from the list and would tweak their model if they find it difficult to charge merchants.

I don’t think this list is exhaustive. Also, just because some wallets were not allowing interoperability yet, does not mean they will not allow it in future. Case in point, below announcement by PayTM, where they have said they are going to allow interoperability for all 100 million wallet user:

Paytm extends full interoperability, allows wallet users to pay via UPI QR codes

The details are still sketchy and need more clarity to fully understand the impact, but this we go by this news item, it practically means that any PayTM wallet user can use his wallet balance to pay to a UPI QR code.
And Merchant will end up paying 1.1% on the transactions.

It will be sometime before merchants actually realize that they are getting charged.

@mohitmehra

Given the news reports say NPCI recommends the 1.1% fee; I’m also assuming this may not be mandatory for PPIs to implement - just be an option.

I think most PPI will implement this. It is much needed revenue source for them.

[mohitmehra]

Update: The press release from NPCI confirms transactions from a bank account linked UPI ID will remain free for merchants.