New UPI Interchange Fees in India: What Transactions Are Affected and Who Pays?

"Understanding the NPCI's New Interchange Fees for UPI Transactions in India: What Payments Will Attract Fees and Who Will Bear the Cost?"

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The Unified Payments Interface (UPI) has become a popular digital payment method in India, with millions of transactions processed daily. However, recent developments suggest that UPI payments may no longer be free of cost. The National Payments Corporation of India (NPCI), which operates the UPI system, has proposed new interchange fees for UPI transactions, which could come into effect from April 1, 2023.

Interchange fees are charges that are paid by banks to one another for processing transactions. These fees are usually a percentage of the transaction amount and are paid by the bank of the merchant receiving payment to the bank of the customer making the payment. These fees are intended to cover the costs of processing the transaction and to incentivize banks to invest in payment infrastructure.

So, which UPI payments will attract interchange fees? According to the NPCI, only transactions that are initiated by merchants will attract interchange fees. This means that person-to-person (P2P) transactions, which account for the majority of UPI transactions, will continue to be free of cost. However, payments made to merchants, such as online retailers or brick-and-mortar stores, will attract interchange fees.

The interchange fee for UPI transactions will be 0.30% of the transaction amount, subject to a cap of Rs. 10 per transaction. This means that for a transaction of Rs. 1,000, the interchange fee will be Rs. 3, and for a transaction of Rs. 10,000 or more, the interchange fee will be capped at Rs. 10. The NPCI has stated that these fees will be borne by the merchant, not the customer.

While the NPCI has stated that the new interchange fees will be levied only on transactions initiated by merchants, it remains to be seen how this will affect customers. It is possible that merchants may pass on the cost of interchange fees to their customers, either by increasing prices or by charging additional fees for using UPI. Customers may also have to pay additional charges if they exceed the limit of free transactions allowed by their bank.

In conclusion, UPI transactions may no longer be completely free of cost, as merchants will now have to pay interchange fees on transactions initiated by them. However, it is important to note that P2P transactions will continue to be free of cost, and customers will not have to bear the cost of interchange fees. Nevertheless, it remains to be seen how merchants will pass on the cost of interchange fees, and how this will affect the adoption of UPI as a payment method in India.

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