The National Payments Corporation of India (NPCI) recently announced that certain merchant payments made through prepaid instruments, like wallets, using the United Payments Interface (UPI) will attract an interchange fee of 1.1 per cent from April 1, 2023.
The interchange fee will be applicable only on transactions above Rs 2,000 for specified merchant categories, such as online, large, and small merchants.
However, NPCI clarified that no interchange fee will be charged for P2P or P2PM transactions between banks and prepaid wallets or for transactions up to Rs 2,000. Wallets, smart cards, vouchers, and magnetised chips are classified as prepaid payment instruments, and examples include Paytm, PhonePe, Amazon Pay, MobiKwik, and SODEXO vouchers.
Interchange fees are transaction fees that merchants pay whenever a customer processes a transaction. The fee varies from 0.5 per cent to 1.1 per cent, based on the merchant category codes, with fuel, education, agriculture, and utility payments attracting a 0.5 per cent fee, and convenience stores and specialty retail outlets attracting a 1.1 per cent fee.
Although the interchange fee will only impact medium and high-value transactions, merchants may choose to pass on the higher cost to their customers. NPCI has asked prepaid payment instrument issuers to pay a 15 basis point wallet-loading service charge to the remitter bank for recharging a wallet with over Rs 2,000.
It is important to note that customers do not have to pay an additional fee to recharge their wallets for UPI transactions, but wallet issuers may decide to pass on the 15 bps service fee, making wallet loading more expensive. As a result, this new development may impact merchants and customers alike, particularly those involved in high-value transactions or categories subject to a higher interchange fee.
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