Starting from April 1, 2023, UPI transactions made through prepaid instruments, such as wallets and cards, will attract an interchange fee of 1.1% for specified merchant transactions above Rs. 2,000. The National Payments Corporation of India (NPCI) has advised on this change, which will impact the fees paid by merchants, but not consumers. This change has raised questions about which UPI transactions will attract a fee and whether customers will have to pay a fee while paying via UPI in a store. In this article, we will provide a comprehensive guide to UPI merchant transactions and PPIs to help you understand these changes and what they mean for your business.
Welcome to our comprehensive guide on UPI merchant transactions and PPIs. As a business owner, you may have come across the term UPI payments, and PPIs and wondered about the interchange fee and who bears the cost. In this guide, we will delve into the world of UPI payments and PPIs, explain how they work, and discuss which payments will attract the interchange fee.
What are UPI Payments?
Unified Payment Interface (UPI) is an instant payment system that allows users to transfer money between bank accounts using their smartphones. UPI transactions can be initiated using a Virtual Payment Address (VPA) or by entering the beneficiary’s bank account number and IFSC code.
The UPI system is a game-changer for digital payments in India as it allows for seamless and instant fund transfers without the need for cumbersome bank account details.
What are PPIs?
Prepaid Payment Instruments (PPIs) are payment instruments that facilitate the purchase of goods and services, including financial services, against the value stored on them. Examples of PPIs include prepaid cards, digital wallets, and mobile wallets.
PPIs have gained popularity as a convenient mode of payment, especially for small transactions. They are also commonly used for mobile recharges, utility bill payments, and e-commerce purchases.
Which UPI Payments Attract Interchange Fee?
The Reserve Bank of India (RBI) has mandated an interchange fee for UPI payments made through PPIs. This means that if you use a PPI to make a UPI payment, an interchange fee will be charged to the merchant bank.
However, UPI payments made through bank accounts or UPI-enabled credit or debit cards are exempt from the interchange fee.
The interchange fee for PPI-based UPI transactions has been set at 0.30% of the transaction amount, subject to a maximum of Rs. 100 per transaction.
Who Bears the Cost of Interchange Fee?
As per the RBI guidelines, the merchant bank is responsible for bearing the cost of the interchange fee for PPI-based UPI transactions. This means that as a business owner, you do not have to bear the cost of the interchange fee.
However, some payment service providers (PSPs) may pass on the cost of the interchange fee to the merchant as part of their service fees. It is advisable to check with your PSP about their fee structure before signing up for their services.
In conclusion, UPI payments and PPIs are convenient and efficient modes of payment that have gained widespread acceptance in India. While UPI payments made through bank accounts or UPI-enabled credit or debit cards are exempt from the interchange fee, PPI-based UPI transactions attract an interchange fee. However, as per RBI guidelines, the merchant bank is responsible for bearing the cost of the interchange fee for PPI-based UPI transactions. It is advisable to check with your PSP about their fee structure before signing up for their services.