The National Payments Corporation of India (NPCI) has recently issued a circular that allows banks to levy charges on merchant transactions made through Prepaid Instrument (PPI) wallets using UPI. This decision has significant implications for both merchants and customers, especially those who use PPIs for their transactions.

Understanding PPIs

Prepaid Payment Instruments (PPIs) are payment methods that allow users to purchase goods and services and send/receive money by using the stored value in the wallet. To use PPIs, users need to pre-load their wallet with a desired amount, which can be done through various methods

PPIs can only be used in Indian rupees and can come in various forms like mobile wallets, physical smart cards, secure tokens, vouchers, or any other method that provides access to prepaid funds.

Interoperability of PPIs

Previously, using PPIs was limited to specific merchant locations that were directly tied up with the same PPI issuer. To overcome this limitation, the RBI mandated interoperability among different PPI issuers. This led to PPI issuers tying up with NPCI to issue interoperable RuPay PPI cards or creating interoperable wallets on UPI rails. This allowed users to transact using Scan and Pay on all UPI interoperable QR codes and merchants to accept payments from any PPI issuer or mobile wallet.

Charges for wallet transaction on UPI

The recent circular by NPCI has standardised the charges for PPI enabled merchants who were already paying charges to the PPI issuer for accepting mobile wallets or prepaid cards. From April 1, 2023, an interchange fee of up to 1.1% will be levied on using PPIs like gift cards, wallets, etc. for transactions on UPI if the transaction is more than ₹2,000. This charge is only applicable if the transaction is made using PPI wallet and not if UPI payments are accepted from a customer’s bank account. The charges may also be passed on to customers by merchants by way of price increase or some other means.

Implications for Merchants and Customers

For merchants, this decision means an additional burden of charges on accepting PPI wallet transactions on UPI. This may lead to a price increase or other means of passing on the burden to customers. For customers, there are officially no charges for using PPIs, but the charges may indirectly impact them through price increases by merchants.

Conclusion

The NPCI’s decision to allow banks to levy charges on merchant transactions made through PPI wallets using UPI has significant implications for both merchants and customers. It is essential to understand the charges and implications before making any transactions using PPIs. With interoperability of PPIs and UPI, it has become easier for users to transact and merchants to accept payments. However, it is necessary to keep track of any changes in charges and ensure that they are understood before making any transactions.

Why In News

The National Payments Corporation of India (NPCI) has recently issued a circular to banks, allowing them to impose charges on merchant transactions that involve the use of Prepaid Instrument wallets through UPI. The move is aimed at aligning charges at a network level and standardizing fees for PPI-enabled merchants accepting mobile wallets or prepaid cards.

MCQs about PPI Interoperability via UPI

  1. What are Prepaid Payment Instruments (PPIs)?
    A. Payment methods that can be used to purchase goods and services using stored value
    B. Payment methods that can only be used to send/receive money
    C. Payment methods that can only be used in foreign currencies
    D. Payment methods that can only be used by merchants
    Correct Answer: A. Payment methods that can be used to purchase goods and services using stored value
    Explanation: Prepaid Payment Instruments (PPIs) are payment methods that can be used to purchase goods and services and send/receive money by using the stored value in the wallet.
  2. What is PPI interoperability?
    A. The ability to use PPIs at any merchant
    B. The inability to use PPIs at any merchant
    C. The ability to use PPIs only at specific merchant locations
    D. The ability to use PPIs only with specific PPI issuer networks
    Correct Answer: A. The ability to use PPIs at any merchant
    Explanation: PPI interoperability refers to the ability to use PPIs at any merchant, regardless of the PPI issuer network.
  3. What charges are applicable for prepaid payment instruments (PPIs) such as gift cards, wallets etc for transactions on UPI?
    A. An interchange fee of up to 1.1%
    B. A fixed transaction fee of ₹50
    C. No charges
    D. An annual subscription fee of ₹500
    Correct Answer: A. An interchange fee of up to 1.1%
    Explanation: From April 1, 2023, an interchange fee of up to 1.1% is levied for using prepaid payment instruments (PPIs) such as gift cards, wallets, etc. for transactions on UPI. The charges are applicable if the transaction is more than ₹2,000.
  4. Who may pass on the additional burden of charges to customers for using PPIs on UPI?
    A. Merchants
    B. Banks
    C. NPCI
    D. RBI
    Correct Answer: A. Merchants
    Explanation: Officially, there are no charges to be paid by customers for using PPIs on UPI. However, merchants may pass on the additional burden of charges to customers by way of price increase or some other means.

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