The National Payments Corporation of India (NPCI) recently announced that, starting April 1, 2021, merchant transactions exceeding ₹2,000 in value done using Prepaid Payment Instruments (PPI Wallets) on UPI will attract an interchange charge of 1.1%. However, customers and bank account to bank account UPI payments will not be charged.

 

This move is part of the recent regulatory guidelines that allow PPI Wallets to be part of the interoperable UPI ecosystem. Interchange fees are generally associated with card payments to cover transaction costs. As such, this new development will likely affect the cost of using PPI Wallets for merchant transactions.

 

The changes could potentially make digital payments more expensive for consumers, as they will now have to pay the 1.1% charge for PPI merchant transactions over ₹2,000. The NPCI has clarified that the new interchange charges are only applicable for the PPI merchant transactions and not for customers or for bank account to bank account UPI payments.

 

This means that customers will not be charged for normal UPI payments, but will have to pay the 1.1% charge for PPI merchant transactions over ₹2,000. This move is considered a positive development for the Indian economy and the banking system as a whole. It will encourage innovation in the digital payments space, foster competition, and improve the quality of services offered to consumers.

 

The new interchange charge for PPI merchant transactions is an important step towards building a more inclusive and seamless digital payments ecosystem in India. It will provide consumers with more choice and flexibility in how they transact with merchants, ultimately leading to increased adoption of digital payments and driving financial inclusion and economic growth.

 

What is NPCI?

 

NPCI stands for National Payments Corporation of India. It is a not-for-profit organization that was founded in 2008 by the Reserve Bank of India (RBI) and Indian Banks' Association (IBA) to manage and promote the retail payments and settlement systems in India.

 

NPCI aims to provide a robust and efficient payment ecosystem in the country by promoting the use of digital payments, and it has been instrumental in the development of several popular payment systems such as UPI (Unified Payments Interface), BHIM (Bharat Interface for Money), RuPay, and IMPS (Immediate Payment Service).

 

These payment systems have revolutionized the way people in India transact and have helped to drive financial inclusion and economic growth.

 

What is PPI?

 

Prepaid Payment Instruments (PPIs) are a type of electronic payment method that allows users to make digital payments without the need for a bank account or credit card. PPIs are essentially virtual wallets that can be loaded with money, and the balance in these wallets can be used to make payments for goods and services.

 

PPIs can be issued in various forms such as cards, mobile wallets, and online accounts. They can be used for a wide range of transactions such as paying bills, buying goods and services online or offline, and transferring money to other PPI users.

 

There are two types of PPIs - Closed Loop and Open Loop. Closed Loop PPIs can only be used for a specific purpose such as paying for a particular merchant's products or services. In contrast, Open Loop PPIs are more versatile and can be used at any merchant that accepts digital payments.

 

The use of PPIs has gained popularity in recent years due to their convenience, ease of use, and affordability. They have enabled people who previously had limited access to banking services to participate in the digital economy.