The National Payments Corporation of India (NPCI) recently notified that UPI transactions of over Rs. 2000 will attract an interchange fee of up to 1.1%. This development will come into effect from April 1, 2023. In this article, we will discuss what this means, what transactions will attract the fee, and how it will impact consumers and merchants.
What is an Interchange Fee?
An interchange fee is a transaction fee paid by the merchant when a customer carries out a transaction. The fee varies based on the merchant category and can range from 0.5% to 1.1%. NPCI has categorized different sectors, with education, agriculture, and utility payments attracting an interchange fee of 0.5%, while retail outlets and convenience stores will have an interchange fee of 1.1%.
What Transactions will Attract the Fee?
Transactions of over Rs. 2000 made using prepaid payment instruments (PPI) will attract an interchange fee. PPIs include wallets, vouchers, smart cards, and magnetized chips, among others. Paytm wallet, Amazon pay, and PhonePe wallet are examples of wallets. The fee will be applicable on transactions made to online merchants, large merchants, and small offline merchants.
In addition to this, a ‘wallet loading service charge’ of 15 basis points will be required to be paid by PPI issuers to the remitter bank for loading over ₹2,000 in the prepaid wallet. By September 30, 2023, NPCI will review the interchange pricing.
Who Will Be Impacted?
Small shopkeepers, categorized by NPCI as having an anticipated monthly UPI transaction inflow of Rs 50,000 or less, will not be impacted by the interchange fee. However, medium-category shopkeepers will have to bear the cost of transactions above Rs. 2000, and this move will impact high-value transactions the most. Consumers may also be impacted if merchants decide to pass on the higher cost to them. The introduction of the interchange fee may cause some friction at the merchant’s end in providing a UPI mode of payment, thus limiting its usage.
Why Was the Interchange Fee Introduced?
Payment service providers were struggling to maintain profitability due to the lower transaction fee on UPI transactions. The introduction of the interchange fee will bring more revenue for the payment service providers.
Why In News
In March 2023, the National Payments Corporation of India (NPCI) announced that transactions above Rs. 2000 made using prepaid payment instruments (PPI) would be subject to an interchange fee of up to 1.1%. This article provides insights into the impact and significance of this development and its relevance to the UPSC exam economy segment.
MCQs on Significance of NPCI’s interchange fee
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What is the interchange fee?
A. The transaction fee paid by the merchant when a customer carries out a transaction
B. The transaction fee paid by the customer when making a payment
C. The fee charged by banks for using UPI
D. The fee charged for withdrawing money from an ATM
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Which UPI transactions will attract the interchange fee?
A. Transactions of Rs. 2000 and above made to online merchants, large merchants, and small offline merchants
B. Transactions of any amount made to online merchants only
C. Transactions of Rs. 2000 and above made to large offline merchants only
D. Transactions made using prepaid payment instruments of any amount
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Which of the following is an example of a prepaid payment instrument?
A. Credit card
B. Debit card
C. Cheque
D. Wallet
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Who will not have to pay the interchange fee?
A. P2P transactions and P2PM transactions between a bank and prepaid wallet
B. Transactions of Rs. 2000 and above made to small offline merchants only
C. Transactions of any amount made to retail outlets and convenience stores
D. Transactions made using credit cards
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