The National Payments Corporation of India (NPCI) will levy an interchange fee of up to 1.1% on Unified Payments Interface (UPI) transactions conducted through prepaid payment instruments (PPI) beginning April 1. The fee will be imposed on payments exceeding ₹2,000, but this has resulted in ambiguity among users regarding who will bear the cost and which payment methods will be subject to the fee. Our aim is to clarify these concerns and explain precisely how the fee will impact users starting from April 1.
What is stated in the NPCI circular?
As per the NPCI circular initially reported by CNBC-TV18, a maximum interchange fee of 1.1% will be imposed on UPI transactions carried out using prepaid payment instruments. This fee will be enforced on transactions that exceed ₹2,000, and it will also be applicable to UPI wallet top-ups.
How will this impact UPI payments to friends, family, or other individuals?
Sending payments through UPI to merchants or individuals’ bank accounts, including friends and family, will not be affected by the interchange fee. Peer-to-peer (P2P) and peer-to-peer-merchant (P2PM) transactions will remain unaffected, meaning that you can continue to send money from your bank account to another person or merchant’s bank account without any charges.
What are prepaid payment instruments according to NPCI?
Prepaid payment instruments (PPI) refer to payment methods such as wallets and preloaded gift cards. Examples of wallets are Paytm Wallet, PhonePe Wallet, Amazon Pay, Freecharge Wallet, etc. Gift cards also fall under the category of PPI.
How does a PPI payment via UPI work and what is the associated fee?
A PPI payment via UPI involves using a wallet such as Paytm Wallet to make a transaction through a UPI QR code. For transactions above ₹2,000, an interchange fee of up to 1.1% will be charged. This means that if you have money in your Paytm Wallet and wish to make a payment through a merchant’s UPI QR code, you will be charged this fee.
What is an interchange fee?
An interchange fee is a charge levied by the receiver bank/payment service provider to the merchant.
Who is responsible for paying the Interchange charges?
For instance, when you use UPI to make a payment for a PPI at a store and the QR code belongs to PhonePe, the merchant will pay the relevant interchange fee to PhonePe. This is similar to how merchants are charged for credit card transactions, also referred to as the merchant discount rate (MDR). It is important to note that users will not incur any charges for these transactions. As for loading funds into wallets through UPI, no fees will be charged at the moment. However, it is possible that wallet providers such as Paytm and PhonePe will pass on the charges to users in the future.
What is the maximum percentage of charges that each merchant category can attract, and is there a cap on these charges?
Each merchant category will attract a different percentage of charges with a maximum capping of 1.1 percent. Here’s a complete list of charges that different merchant categories will be charged as UPI interchange fee.
| Merchant category | UPI Interchange fee | Maximum charges |
| Convenience stores | 1.1% | NA |
| Statutory payments | 1.0% | ₹10 |
| Mutual fund | 1.0% | ₹15 |
| Insurance | 1.0% | ₹10 |
| Railways | 1.0% | ₹5 |
| Supermarket | 0.9% | NA |
| Telecom | 0.7% | NA |
| Utilities | 0.7% | NA |
| Education | 0.7% | ₹15 |
| Agriculture | 0.7% | ₹10 |
| Real estate | 0.7% | NA |
| Fuel | 0.5% |
Will You Be Paying for UPI interchange fee?
No. NPCI has clarified that there will be no UPI payments from any bank account. UPI is free for customers and merchants.
