UPI-enabled mobile payment apps allow users to make payments at merchant stores in two ways: First, through the UPI QR code scanner, which debits the money directly from your bank account and the payment goes to the merchant. Second, you can add money to the private wallet of the app from your account or credit card and make the payment.
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The NPCI has now allowed the interoperability of prepaid payment instruments (PPIs), or prepaid wallets, on UPI. This means users can directly make payments from their wallets by scanning the UPI QR code at merchant stores. However, this is subject to the condition that the merchant has opted for this facility as s/he will have to pay an interchange fee of 1.1% on transactions above Rs 2000. This fee is not to be paid by customers.
“NPCI has now permitted the PPI wallets to be part of an interoperable UPI ecosystem. The interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers,” the NPCI said in a statement on Wednesday (March 30).
“By using interoperability for PPI Wallets in UPI rail, PPI wallets will replace bank accounts as source and destination in a payment transaction. Currently, UPI is used as a medium to make transactions between two bank accounts. With PPI interoperability, the customers and merchants can use their PPI wallets to initiate or settle a transaction using UPI,” Jaikrishnan G, Partner and Head of Financial Services Consulting at Grant Thornton Bharat, told FE PF Desk.
How prepaid wallet works on UPI
With the availability of prepaid wallets on UPI, customers will now have more options for making payments. You can now use bank accounts, RuPay Credit cards and prepaid wallets on any UPI-enabled app.
“The interoperability of digital wallets and UPI will offer consumers greater flexibility in the way they transact with merchants. This move not only improves the quality of services being offered but will also encourage more innovation in the digital payments industry,” said Sachin Castelino, Chief Strategy and Transformation Officer at In-solutions Global LTD
For making the payment with a prepaid wallet via UPI, you will first have to load money in the wallet from your bank account or credit card. Using a credit card for loading money in the wallet will, however, lead to extra charges. Once you have added money to the wallet, you can select it as the source of payment after scanning a UPI QR code for payment at any merchant store.
Step 1. Load money in your wallet from your bank account or credit card
Step 2. Scan any UPI QR code
Step 3: The app will show you debit options – bank account or wallet. Select the wallet and make the payment.
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Not very popular
As of now, prepaid wallets are not very popular among customers for making payments. According to NPCI, the most preferred method of UPI transactions is linking the Bank account in any UPI-enabled app for making payments, which contributes over 99.9% of total UPI transactions. There is no fee for customers and merchants on these bank account-to-account transactions.
How will the interchange fee work?
As per NPCI, the interchange charges are only applicable for the PPI merchant transactions and there is no charge to customers. The bank-to-bank payments made via UPI apps to friends, family, any other individual, or a merchant’s bank account will not be affected by this interchange fee.
“There is no transaction fee on UPI transactions yet as these transactions do not use traditional expensive payment gateway infrastructure. With PPI getting introduced as a chargeable payment option on UPI, merchants may prefer direct UPI transactions unless there are incentives/discounts that compensate for this additional cost. It is clarified by NPCI that interchange is applicable to only transactions above Rs 2000 and only in the hands of a merchant. This new charge will have no impact on existing UPI transactions as there is no charge attracted by these transactions,” said Jaikrishnan.
