UPI Transaction will be charged by the 1st of April? Decoding NPCIs Interchange fee.

In today’s time, everyone uses UPI transactions in their daily lifestyle activities. In such a situation, news has come out for UPI users that -a 1.1% Fee is charged on UPI Transactions.

let’s understand the full reason behind it and how much amount it will apply. To date, every transaction we do with UPI transaction mode is totally free, and no other transaction fee is charged, but there is news that till 1st April the fee will be charged. Though the bank has levied some charges from the UPI merchant, no charges have been passed on to the customer. From 1st April, merchant transactions using PPI on UPI over Rs 2,000 will be charged at 1.1%. The National payment corporation of India (NPCI), Which handle all transactions and finance

What is NPCI and its work in India?

NPCI stands for National Payments Corporation of India. It is a not-for-profit organization, established by the Reserve Bank of India (RBI). NPCI operates retail payments and settlement systems in India.

NPCI is an Indian financial services corporation that operates retail payments and settlement systems. The organization aims at transforming India into a cashless society by increasing its reach to the remotest parts of the country. The focus of NPCI is to improve and strengthen digital payments and their operational efficiency through various technological innovations and updates NPCI has issued a circular in which it suggested “Prepaid Payment Instrument (PPI)” fees on merchant transactions on UPI (unified payment interface). Before going forwards, let’s understand the meaning of PPI-

What is PPI (Prepaid payment Instrument)?

Prepaid Payment Instruments (PPIs) are like holding accounts that enable their customers to make purchases using the money loaded in them. The money is usually loaded into a wallet that has an underlying physical bank account, and all subsequent transactions are made from it.

PPIs can come in the form of payment wallets, smart cards, magnetic chips, vouchers, mobile wallets, etc. any instrument that can be used to access a prepaid amount is a PPI.

PPI is a payment instrument in which some amount of your money you save or store into some card or wallet and then with that wallet you pay your expenses and transfer money. As we all do into PhonePe wallet and Paytm wallet, where we put some amount of our money.

Through PPI transactions will be charged.

  • Over here if anyone transfers money and does a transaction through his PhonePe or any UPI wallet then the transaction will be charged above the transaction of 2000 rupees at 1.1%
  • Also, this fee will not be charged by the customer but the merchant will have to pay an additional fee for this transaction. And as we see with all credit cards, there is a fee for some transactions, and the seller recovers that amount from the customer as well. So over here there would chances to happen same.
  • So over here there would chances to happen same.
  • If the person pays directly to the bank through the bank, then no fee will be charged.

This means Regular UPI transactions, if anyone is made directly from the bank account to the bank account then no fee will charge. The issuer of the prepaid instrument will also be required to pay 15 basis points of the fee to the remitter bank for loading a transaction value above 2000 the circular said.

So here another question arose why did these charges come suddenly or are they already present, so let’s understand –

All these transaction charges are already there if we transfer an amount from one bank to another then the bank charged some percentage from the other bank where we transfer. These activities are done by RBI to manage the profit and loss of the bank and to protect the banks from losses.

And if we transfer from one bank to another through a UPI transaction, then the other bank pays some amount. That is, if you transfer money from SBI to ICICI Bank, then ICICI gives some amount to SBI. We all think that this transaction is totally free but if we pay through any other medium mode, then the bank charged some amount from them as Paytm or PhonePe then the bank charged from them.

Major reasons for charging these transactions-

The interchange fee is levied to cover the cost of accepting processing, and authorized transactions. The move is said to be aimed at increasing revenue for banks and payment service providers, who are reportedly been struggling with the high cost of UPI transactions. The fee will be charged from 1St April and the interchange pricing will be reviewed by September 30th, 2023.

But there is clearly mentioned by NPCI: no transaction charge will be charged by a customer on making a payment from UPI either from the bank account or PPI/ Paytm wallet or Phonepe etc.

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