UPI transactions will be free until govt reviews, says NPCI MD & CEO

Charges introduced by the National Payments Corporation of India (NPCI) on specific modes of payment instruments in the United Payments Interface ecosystem may not necessarily translate into all UPI transactions.

About 99.99 per cent of all UPI transactions (account-to-account transfers) remain free for both consumers and merchants. They will continue to be free, until the government decides to review this policy.

In mid-August 2022, the finance minister had said UPI is a digital public good and ruled out any plans to introduce charges on UPI transactions.

Speaking to Business Standard, Dilip Asbe, MD and CEO, NPCI, said, “UPI as a base platform is for customers using account-to-account transfers. That is not charged to merchants as per government directions. And it will continue to be unless the government decides to review it. Till then, the government is paying digital payment incentives every year to keep the ecosystem alive.”

“It is only when the customer makes the payment using a source of funds as credit or PPIs (prepaid wallet) on UPI where the merchant charges come in. The charges for wallets existed before, too. However, it was decided bilaterally between the merchant and wallet issuer, which only has been defined at the network level. But for the customers, it continues to be free,” he added.

Asbe said that he wallets were closed-loop earlier, wherein Paytm or AmazonPay customers had to choose only Paytm or Amazon Pay’s QR respectively to pay, or the merchant had to connect and settle with all wallet providers like Paytm and MobiKwik individually. “The RBI intends an interoperable architecture unlike China — where two wallet providers (AliPay and WeChat) dominate the mobile payment system, that too in the closed-loop mode — and has now permitted interoperability of PPIs (wallet) on UPI as well. The interoperable architecture in wallets provides all PPI players an equal opportunity and consumers the choice of use of a preferred instrument.”

Recently, the NPCI introduced interchange fee on PPI-based merchant transactions through UPI, where the PPI issuer has to be paid the interchange fee of up to 1.1 per cent if the transaction value is over Rs 2,000, depending on the type of merchant. After this circular was issued, social media was rife with speculation that UPI transactions will be charged.

The NPCI quickly clarified that the circular was only pertaining to PPI-based merchant transactions on UPI and the basic UPI transactions remain completely free.

In a post, Vijay Shekhar Sharma, founder and CEO of Paytm, said, “There is absolutely no charge for consumers nor merchants for payments from UPI-linked bank accounts. It is up to (the) QR company to decide how they pay this interchange to the issuer. For merchants, only if they agree to accept and (are) ok to pay any charge levied by a QR company will they be activated. So, it is not by default that a merchant’s QR is accepting some instrument that is charged by the QR company.”

He added: “QR now will offer many payment sources just like on card machines. Merchants will pick and choose payment instruments (with or without charges) to accept payment from.”

Earlier, the NPCI also introduced a feature where customers can use their RuPay credit cards to make payments through UPI. While there is no merchant discount rate (MDR) for transactions less than Rs 2,000, for the rest RuPay interchange charges are applicable. These are the two instances where some sort of charges are levied in the UPI ecosystem — not because of the nature of transactions but the nature of instruments being used, that is credit card and PPI wallets.

According to Ramesh Narasimhan, CEO, Worldline India, the interchange fee has been introduced by the NPCI for P2M transactions only (for greater than Rs 2,000 value) that will happen on the wallet in the UPI framework. Currently, these wallets are serviced independently by the respective PPI issuers and interchange was also managed by each of them independently. This interoperable programme shall now rationalise the interchange for P2M transaction and bring it under NPCI governance.

“The interchange circular will not have any impact on the UPI transactions in any manner. It is only rationalising the interchange on wallets and bringing it under the scope of the NPCI. The other advantage is that going forward all wallets will be available from all banks that support UPI acquiring as it will be part of the stack (UPI, RuPay credit card and PPI wallets),” he said.