UPI charges from April 1: What customers need to know

Confusion reigned among Unified Payments Interface (UPI) users on Wednesday (March 29) after a recent circular from the National Payments Corporation of India (NPCI) mentioned an interchange fee to be applicable on UPI transactions for over ₹2,000 from Saturday (April).

As per NPCI’s circular, Prepaid Payment Instruments (PPI) fees will be applied to merchant transactions for amounts over ₹2,000 on the UPI from April 1, 2023.

Also read: NPCI recommends 1.1% charge for UPI merchant transactions above ₹2,000

NPCI said in the circular that an interchange fee of up to 1.1 per cent of the transaction value above ₹2,000 would be charged for different merchant categories.

What are the charges?

According to multiple reports, for telecom, education, and utilities/post office, the interchange fee is 0.7%. For supermarkets, the fee is 0.9% of the transaction value while 1% charges will be levied for insurance, government, mutual funds, and railways, 0.5% for fuel, and 0.7 for agriculture. For convenience and specialty retail outlets/miscellaneous food shops, the fees is 1.10%.

For some transactions, the fees are capped. For Railways, it is capped at ₹5 per transaction while for government, insurance and agriculture is ₹10 per transaction. It is ₹15 fees per transaction for education and mutual funds.

Also read: RBI Guv says UPI payments grew 50% in a year, launches mission for digital push

It is free for customers

While many customers using UPI thought they had to pay the interchange fees, NPCI on Wednesday clarified that UPI is “free, fast, secure and seamless”.

In a statement posted on its website, NPCI said, “In recent times, UPI has emerged as a preferred mode of digital payment by offering free, fast, secure and seamless experience. Traditionally, the most preferred method of UPI transactions is linking the Bank account in any UPI-enabled app for making payments which contribute over 99.9% of total UPI transactions.”

“These Bank account-to-account transactions continue to remain free for Customers and Merchants,” it added.

Also read: Many countries keen to collaborate for UPI-linked payments: RBI governor

Explaining its recent circular, it clarified there is no charge to customers.

“Recent regulatory guidelines, the Prepaid Payment Instruments (PPI Wallets) have been permitted to be part of interoperable UPI ecosystem. In view of this, NPCI has now permitted the PPI wallets to be part of interoperable UPI ecosystem. The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers, and it is further clarified that there are no charges for the bank account to bank account-based UPI payments (i.e. normal UPI payments).

“With this addition to UPI, the Customers will have the choice of using any bank accounts, RuPay Credit card and prepaid wallets on UPI enabled apps,” NPCI said.

“No change in any charges regarding UPI payments from bank accounts. UPI continues to be free for Customers and Merchants for making payments from any bank account,” Dilip Asbe, MD and CEO of NPCI, said.

According to NPCI, every month, over 8 billion transactions are processed for free for customers and merchants.

What Paytm Payments Bank said

Paytm Payments Bank said, “We have an important announcement. Paytm UPI is free, fast, secure, and seamless. No customer will pay any charges on making payments from UPI either from bank account or PPI/Paytm Wallet.”

What is an interchange fee?

The interchange fee is usually related to card payments and covers the costs of processing, accepting, and authorising transactions. The UPI fee will not be applicable for person-to-person or person-to-merchant transactions.

Once the additional charges come into effect, the PPI issuer will pay around 15 basis points as a wallet-loading service charge to the remitter bank. No interchange in terms of peer-to-peer (P2P) or peer-to-peer-merchant (P2PM) transactions between the bank account and the PPI wallet will apply.

NPCI will review the stated pricing on or before September 30, 2023, according to the circular.

What government had said about UPI charges

Last August, the Union Finance Ministry had said that there was no consideration in the government to levy any charges for UPI.

The Finance Ministry had tweeted on August 21, 2022, “UPI is a digital public good with immense convenience for the public & productivity gains for the economy. There is no consideration in Govt to levy any charges for UPI services. The concerns of the service providers for cost recovery have to be met through other means.”

“The Govt had provided financial support for #DigitalPayment ecosystem last year and has announced the same this year as well to encourage further adoption of #DigitalPayments and promotion of payment platforms that are economical and user-friendly,” it added.

The government has mandated a zero-charge framework for UPI transactions from January 1, 2020. This means that charges in UPI are zero for users and merchants alike.

The ministry’s clarification came after the Reserve Bank of India’s (RBI) discussion paper on charges in the payment system suggesting that UPI payments might be subject to a “tiered charge” based on various amount brackets.

RBI’s argument for UPI charges

In its discussion paper, RBI had said last year, “UPI as a funds transfer system is like IMPS. Therefore, it could be argued that the charges in UPI need to be similar to charges in IMPS for fund transfer transactions. A charge could be imposed based on the different amount bands. Merchant payments using UPI do not require installation of costly infrastructure by merchants as UPI QR codes are used. The cost of merchant infrastructure for UPI is lower as compared to the cost incurred in a card-based acceptance infrastructure.”

“In any economic activity, including payment systems, there does not seem to be any justification for a free service, unless there is an element of public good and dedication of the infrastructure for the welfare of the nation. But who should bear the cost of setting up and operating such an infrastructure, is a moot point,” it added.

RBI had said the stakeholders incur ₹2 for processing a UPI-P2M (Person-to-Merchant) average transaction value of ₹800.