National Payments Corporation of India (NPCI) and several digital payment firms such as Paytm and PhonePe have issued clarification about the recently introduced interchange charges. The United Payment Interface (UPI)-related fees will only be applicable for the prepaid payment instruments (PPI) merchant transactions and not customers. But, who then will pay this fees and what are the changes all about?

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NPCI recently said that any UPI transaction of more than Rs 2,000 via prepaid payment instruments (PPI) like online wallets or pre-loaded gift cards, etc., will carry an interchange fee of up to 1.1 percent from April 1, 2023.

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.

Relief for customers

The fees will not be applicable to consumer for UPI payments from bank account or from wallets (or from RuPay credit cards).

Does this mean merchants will be paying the fees?

No. They won't until and unless they agree to accept and okay to pay any charge levied by the QR company. In that case, the merchant partner will be activated, Paytm founder and CEO Vijay Shekhar Sharma said in a recent tweet.

"There is absolutely no charge for consumer nor to merchant for payments from UPI linked bank accounts. It is rather for QR company to decide how do they pay this interchange to issuer. Right now government is paying for payment charges to be charged to merchants for payments from UPI," he tweeted while explaining the entire scenario.

To understand, PPIs are available as choice to merchants who want to accept them. Pricing of same is by QR provider and only if merchant accepts, it will be enabled.

What's exactly happening?

Currently, prepaid wallets don’t have to sign up their merchants to use UPI QR network. They can become instantly available as payment source on all UPI QRs/merchants. This means NPCI is adding an extra variable of making it viable for wallet companies.

"Remember, their business model is based on very few revenue line items.

So just like all other payment source that can pay a UPI QR (bank account, credit overdraft or RuPay Card). This one needed some pricing to be paid to wallet company. So instead of making it costly for merchants (and always free for consumer) NPCI announced interchange of 1.1 percent for above Rs 2,000 payments for payments made using PPI/wallets," Shankar clarified in his tweet.

So, what changes?

QR will now offer many payment sources just like on card machine. Merchant will pick and choose payment instruments (with or without charges) to accept payment from, according to Sharma.

"It is like on a card machine. Merchant can disable certain type of cards which charge large fees. Similarly QR will now offer different instruments with choices," he explained.

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