The Unified Payments Interface (UPI) system has revolutionized how Indians make payments, seamlessly integrating into everyday transactions from local vegetable vendors to high-end retail stores. However, recent updates involving Prepaid Payment Instruments (PPI) charges have sparked a mix of curiosity and confusion among users. Here’s a clear breakdown of what these charges mean, who they affect, and how.
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What is a PPI Charge ?
Prepaid Payment Instruments (PPI) represent digital wallets that allow users to store money electronically. Popular platforms like Paytm and PhonePe are examples of services that offer PPIs. As of April 1, 2023, the National Payments Corporation of India (NPCI) has introduced an interchange fee of 1.1% on merchant transactions over Rs 2,000 made through UPI that involve these wallets.
Who Bears the Cost?
It’s crucial to understand who is responsible for these fees. In scenarios where a customer uses a UPI platform like Paytm or Google Pay to scan a PhonePe QR code , the merchant associated with PhonePe will incur the interchange fee. This fee is typically passed from the merchant’s bank to the payer’s bank, covering costs related to processing the transaction.
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Transactions Exempt from PPI Charges
Not all UPI transactions will attract an interchange fee. Peer-to-peer (P2P) and peer-to-merchant (P2PM) transactions, such as transfers between bank accounts and payments from a bank account to a PPI wallet under Rs 2,000, are exempt from these charges. This means that ordinary customers won’t face any additional fees for standard UPI transactions.
Scope and Scale of Interchange Fees
While the headline PPI charge on UPI payments might concern some users, it’s important to note where and how these charges apply:
a) Wallet Loading: A specific fee of 15 basis points (0.15%) applies to transactions where more than Rs 2,000 is loaded into a PPI via UPI.
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b) Sector-Specific Fees: Interchange fees vary by sector, affecting different types of transactions:
- 0.5% for fuel purchases,
- 0.7% for telecom, utilities, post offices, education, and agriculture,
- 0.9% for supermarket transactions,
- 1% for payments related to mutual funds, government services, insurance, and railways.
The introduction of PPI charges on UPI payments is a strategic move to offset the operational costs of managing high-volume UPI transactions and maintaining robust payment systems. While merchants handling large transactions may feel the pinch, the average user remains largely unaffected by these changes for their everyday digital transactions. Understanding these nuances ensures that UPI continues to be a user-friendly and cost-effective choice for the majority of its users.
