All UPI transactions will not be charged from April 1, 2023

By: Ankita Kulkarni
March 31 2023

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Context

The National Payments Corporation of India (NPCI), in its latest circular, announced that merchants who accept payments of over ₹2000 via UPI (Unified Payments Interface) using Prepaid Payment Instruments (PPIs) would be levied an interchange fee of 1.1% from April 1, 2023. Following this, several media houses reported that "the fee will be applicable on UPI transactions above ₹2000 made through PPI instruments, such as wallets and credit cards." Soon after, #UPICharges was trending on social media, with several users claiming that all UPI transactions would be charged starting April 1, 2023. Even political analyst and commentator Sumanth Raman tweeted, "1.1 % on transactions over 2000??? Will see a drop in UPI high value transactions for sure." The tweet has been viewed more than 1,06,000 times so far.

In Fact

It should be noted that not all UPI transactions will be charged from April 1, and not all UPI payments above ₹2000 will invite a fee of 1.1%. The NPCI proposal has been misinterpreted by several users. 

The NPCI issued a statement on March 29 clarifying that only PPI merchant transactions made through UPI will attract the fee. It clearly stated that bank account-to-account transactions would continue to remain free for customers and merchants — which form a bulk of UPI transactions that people make to friends, family, and small business merchants’ bank accounts. As noted by the NPCI, only merchants who receive payments through certain PPIs like Wallets, smart cards, vouchers, and magnetized chips have to pay the interchange fee to the payment service provider. For instance, if a customer purchases a product and initiates payment through PhonePe wallet,G Pay, Paytm wallet, or Amazon Pay through UPI by scanning a QR code at a store, the merchant will have to pay the 1.1 % of interchange fee to the service provider. This clarifies that a merchant will have to pay the interchange fee and not the customers.

Subsequently, a report by Business Today explained that the charges levied are applicable to UPI payments made to online merchants, large merchants, and small offline merchants, but not all transactions have the same surcharge. The report states that an interchange fee of 0.5% will be applicable on fuel; 0.7% for telecom, utilities/post office, education, and agriculture; 0.9 % for supermarkets; and 1% for mutual funds, government, insurance, and railways. 

It is also important to note that if a user charges his or her wallet through PhonePe, GPay, Paytm or similar services, the service provider will pay a wallet-loading service charge of 0.15% to the remitter bank. Therefore, in no way will the customers be charged, according to the new proposed NPCI circular for UPI payments. Peer-to-peer (P2P) and Peer-to-peer-merchant (P2PM) transactions between a bank account and a PPI wallet are free.

The Verdict

Bank-to-bank transactions made through UPI will continue to remain free. An interchange fee is only levied on merchants who receive UPI payments above ₹2000 through prepaid wallets. The fee also depends on the purpose of the transaction.