NPCI recommends additional charges for merchant transactions via UPI
26-08-2023
12:14 PM
1 min read
What’s in today’s article?
- Why in news?
- National Payments Corporation of India (NPCI)
- What is NPCI?
- Journey of NPCI
- Unified Payment System (UPI)
- What is UPI?
- News Summary: NPCI recommends additional charges for merchant transactions via UPI
- What has been advised by the NPCI?
Why in news?
- The National Payments Corporation of India (NPCI) has advised Prepaid Payment Instruments (PPI) fees be applied to merchant transactions on Unified Payments Interface (UPI) beginning on April 1.
What is National Payments Corporation of India (NPCI)?
- NPCI is an umbrella organisation for operating retail payments and settlement systems in India.
- It is an initiative of RBI and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
- The objective of NPCI is to create a robust Payment & Settlement Infrastructure in India.
- For this, NPCI was incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013).
Journey of NPCI
- NPCI, during its journey, has made a significant impact on the retail payment systems in the country. Few widely used products include:
- RuPay card - an Indigenously developed Payment System which supports the issuance of debit, credit and prepaid cards by banks in India
- IMPS - With Immediate Payment Service (IMPS), India has become the leading country in the world in real time payments in retail sector.
- NACH - National Automated Clearing House (NACH) provides electronic mandate platform to register mandates facilitating paper less collection process for the corporates and banks.
- UPI – Unified Payment System (UPI) has been termed as the revolutionary product in the payment system.
- Bharat Bill Payment System – It offers one-stop bill payment solution for all recurring payments with 200+ Billers in the categories Viz. Electricity, Gas, Water, etc.
- NETC - National Electronic Toll Collection (NETC) program to meets the electronic tolling requirements of the Indian market.
- It provides an electronic payment facility to customer to make the payments at national, state and city toll plazas by identifying the vehicle uniquely through a FASTag.
What is UPI?
- UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
- It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.
News Summary: NPCI recommends additional charges for merchant transactions via UPI
- Prepaid Payment Instrument (PPI) charges is to be applied from April 1 for merchant transactions made using the Unified Payments Interface (UPI).
- PPI is a type of payment card/ gift cards or digital wallet that is loaded with a specific amount of money in advance by the user.
- The money loaded onto the PPI can then be used to make purchases or payments at participating merchants, either online or offline.
- This was suggested by a recent circular issued by the NPCI.
What has been advised by the NPCI?
- For amounts over Rs 2,000, using PPIs on UPI will result in interchange at 1.1 per cent of the transaction value.
- The interchange fee is the fee to be paid to wallet issuers like banks, payment banks, etc by payment service providers like Paytm, Phonepe, Google Pay, etc. to cover the costs of accepting, processing, and authorising transactions.
- The fee will not be applicable for person-to-person transactions or person-to-merchant transactions between a bank and the prepaid wallet. This means you don't have to pay any additional fees for using UPI yet.
- For UPI transactions of over Rs 2,000 made via PPI, there would be an interchange fee of 1.1 percent and then there will be wallet loading charges.
- So the issuer of pre-paid instruments like Paytm or Ola Financial Services etc will have to pay 15 basis points as wallet loading charges to the remitter bank, i.e. the account holder's bank if more than Rs 2,000 is loaded.
- NPCI has specified that interchange rates will vary depending on the profile of the merchants. For specific industries, charges range from 0.50 percent of the transaction value to 1.10 percent.
- For example, UPI payments made to fuel service stations using a prepaid instrument will carry an interchange of 0.5 percent, for education fees paid using UPI, the charge will be 0.70 percent capped at Rs 15 per transaction…and so on. NPCI however has said that this pricing will be reviewed on or before September 30 this year.
- To illustrate: If I have an ICICI Bank account and use a Paytm wallet. Now if I load Rs 5,000 to my wallet from my bank, Paytm will have to pay 15 basis points as wallet loading fee to ICICI Bank.
- Let's say I now go to a retailer to buy a laptop using UPI via my Paytm wallet. So the bank or payment provider who acquired the retailer as a merchant on their platform- like Axis Bank or Google Pay or whoever- will have to pay 1.1 percent as an interchange fee to Paytm wallet for facilitating the transaction.
- Peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions between a bank account and a PPI wallet do not require an interchange.
- Peer-to-peer-merchant (P2PM) transactions refer to a type of financial transaction that occurs directly between individuals or businesses without the involvement of a traditional financial institution like a bank.
- In P2PM transactions, a merchant is able to accept payments from customers without going through a third-party payment processor.
- The pricing will come into effect starting April 1, 2023.
Q1) What are Pre-Paid Instruments (PPIs)?
Pre-Paid Instruments (PPIs) refer to a type of payment card or instrument that is pre-loaded with a specific amount of money, which can be used to make purchases or transactions. PPIs are also known as prepaid cards, prepaid payment instruments, or stored-value cards.PPIs are typically used as an alternative to traditional payment methods, such as cash or credit cards, and are often used for transactions such as online shopping, bill payments, and person-to-person transfers. They are also used as a means of providing financial inclusion to individuals who may not have access to traditional banking services.
Q2) What are Peer-to-peer-merchant (P2PM) transactions?
Peer-to-peer-merchant (P2PM) transactions refer to a type of financial transaction that occurs directly between individuals or businesses without the involvement of a traditional financial institution like a bank. In P2PM transactions, a merchant is able to accept payments from customers without going through a third-party payment processor.
Source: UPI merchant transactions over Rs 2,000 to carry charge of 1.1% from Apr 1 | NPCI | Money Control