When the government initially introduced demonetization in 2016, the Center promoted paperless payments. Although cash is still king in today’s society, internet payments have expanded tremendously. The number of transactions peaked at 782 crores in 2022, signaling the end of the Unified Payments Interface (UPI). In December, UPI transactions hit a new high of Rs 12.82 lakh crore.
According to data issued by the National Payments Corporation of India (NPCI), the governing agency for retail digital payments, the volume of transactions increased by 7.12% in December compared to November, while the value of transactions increased by 7.73% during the same month. UPI payments hit the Rs 12 lakh crore mark in October 2022.
The amount and value of UPI transactions have increased considerably since the start of the epidemic and lockdowns two years ago. According to experts, UPI’s growth trend reflects the overall economy’s recovery and customers’ increasing usage of digital payment methods for regular transactions.
In India, UPI is now the most popular and widely used payment mechanism for clients to transfer money between bank accounts using their mobile phones. PPIs, on the other hand, are online wallets that let consumers save and make payments. In India, PPIs like as PhonePe, Paytm, and GPay are accessible. The sum incurred by one bank when carrying out a transaction with another bank is referred to as an interchange charge. In the case of UPI transactions, the merchant’s bank (the person or entity that receives the payment) pays the interchange charge to the payer’s bank (the person making the payment).
The National Payments Corporation of India (NPCI) has stated that merchant Unified Payments Interface (UPI) transactions would incur an extra interchange fee of up to 1.1% from April 1. These charges apply to any transaction involving prepaid payment instruments (PPIs), such as wallets or cards, that exceeds Rs 2,000.
The interchange fee will be applied to UPI payments made to both small and big offline and online shops. Nevertheless, not every transaction will be charged the same fee. The NPCI has offered a range of interchange fees that may be levied in compliance with relevant caps for a variety of merchant categories.
The regulating organization for the UPI payment system also said that PPI costs will be applied on UPI transactions exceeding 2,000. There will be an interchange fee of 1.1% of the transaction amount.
According to reports, the amendment is meant to increase income for banks and payment service providers, which are reportedly struggling to make ends meet owing to the hefty fees associated with UPI transactions. A fee will be levied beginning April 1, and the exchange rate will be updated until September 30, 2023.
What is an interchange fee?
When a consumer purchases a merchant’s business using a credit/debit card, the merchant’s bank account is obligated to pay transaction fees. The fees are paid to the card-issuing bank to cover processing charges, fraud, and bad debt costs, as well as the risk associated with accepting the payment.
|Interchange fee||Services (as mentioned by NPCI)|
|0.7%||Telecom, utilities/post office, education, agriculture|
|1%||Mutual Funds, Government, Insurance, and Railways|