Credit and finance for MSMEs: The National Payments Corporation of India (NPCI) in a circular has suggested an interchange fee of up to 1.1 per cent (of transaction value) from April 1, 2023 for payments made on the Unified Payments Interface (UPI) through the prepaid payment instruments (PPIs) such as e-wallets and gift cards. The fee will be applicable on certain merchant categories including small, large and online merchants for transactions over Rs 2,000. This means merchants accepting payments above Rs 2,000 via PPIs — for example, wallet service by payment service providers such as Paytm, PhonePe etc., or banks — will have to pay the interchange fee to the service provider.
For instance, a customer making a UPI payment of more than Rs 2,000 from his/her, let’s say, Paytm e-wallet at a grocery store, then an interchange fee between 0.5 per cent and 1.1 per cent will be levied on the merchant. This is similar to the merchant discount rate charged to a merchant for processing payments made by customers using debit or credit cards. The interchange fee is referred to the cost incurred in accepting and processing a transaction.
Also read: NPCI partners with payment aggregators for merchant transactions through credit cards on UPI
The fee will be charged based on the merchant category codes. While convenience stores will be charged a 1.1 per cent fee, those under the mutual fund, insurance and railways categories will be charged a 1 per cent fee. Merchants under supermarket category will be charged a 0.9 per cent fee while telecom, utilities, education, agriculture, and real estate categories will be charged 0.7 per cent, among others.
Importantly, the interchange fee won’t be applicable on UPI transactions made from one bank account to another and for any value of transaction; and hence such transactions would continue to remain free for merchants or customers. NPCI in an update on Wednesday also confirmed that “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).”
Also read: UPI: P2M transactions jump 119% YoY in February 2023
This assumed significance as bank account-to-bank account transactions contributed to 99.9 per cent of total UPI transactions, according to NPCI. Moreover, since the fee is levied on PPI payments above Rs 2,000, the interchange fee is less likely to hurt merchants including micro or small shops and kirana owners which have an average transaction size of around Rs 500 or less. A 1.1 per cent interchange fee on let’s say Rs 500 payment by a customer via his/her UPI wallet would translate into a maximum additional cost of only Rs 5.
“The interchange fee may not impact micro and small merchants because first, the fee is applicable only for UPI on prepaid instruments while over 99 per cent of UPI transactions happen through UPI on bank accounts; and second, small merchants generally don’t do a lot of over Rs 2,000 transactions,” Mihir Gandhi, Payments Transformation Leader, PwC India told FE Aspire.
However, merchants accepting payments over Rs 2,000 on average, via wallets or gift cards, will have to pay the interchange fee, leading to a surge in their cost. How they may pass on the cost to the customer, will have to be ascertained. “I don’t think merchants can pass on the cost on products with MRP and they will have to absorb the cost themselves. While they can increase the price on goods sold loose but customers have other options such as cash or card to pay for such goods instead of through wallets,” added Gandhi.
Even as the interchange fee will help bring in some revenue for wallet service providers and banks, they will have to pay a service charge of 0.15 per cent to the customer’s bank if the customer loads his/her e-wallet with more than Rs 2,000, as recommended by the NPCI.
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