NPCI recommends up to 1.1% interchange fee on UPI transactions of over ₹2,000 via PPIs

NPCI Recommends Up to 1.1% Interchange Fee on UPI Transactions of Over ₹2,000 via PPIs

The National Payments Corporation of India (NPCI) has recommended an interchange fee of up to 1.1% on UPI transactions of over ₹2,000 via prepaid payment instruments (PPIs). The move is expected to boost digital payments and encourage the use of UPI transactions for high-value transactions.

What is Interchange Fee?

An interchange fee is a fee paid by the acquiring bank to the issuing bank for each transaction made using a payment system. It is usually a percentage of the transaction value and is used to cover the cost of processing the transaction. The interchange fee is paid by the acquiring bank to the issuing bank and is shared by the payment system provider.

The Need for an Interchange Fee on UPI Transactions

• UPI transactions have become increasingly popular in India, with the volume of transactions growing rapidly. However, the use of UPI for high-value transactions is still limited. This is because the current interchange fee of 0.25% on UPI transactions does not incentivize PPIs to promote the use of UPI for high-value transactions.
• By increasing the interchange fee to up to 1.1% on UPI transactions of over ₹2,000 via PPIs, the NPCI aims to encourage the use of UPI for high-value transactions and boost digital payments in the country.

Benefits of the Interchange Fee

The proposed interchange fee is expected to benefit both the consumers and the payment service providers. Some of the benefits are:

Encourages Digital Payments - The increase in interchange fee is expected to incentivize PPIs to promote the use of UPI for high-value transactions, which will increase the adoption of digital payments.

Reduced Cash Transactions - The increased use of digital payments will lead to a reduction in cash transactions, which is in line with the government's push for a cashless economy.

Increased Revenue for PPIs - PPIs are expected to benefit from the increased interchange fee as it will result in increased revenue from UPI transactions.

Improved Customer Experience - The use of UPI for high-value transactions will provide customers with a secure and convenient payment option, which will enhance their overall experience.

Implementation of the Interchange Fee

• The proposed interchange fee is expected to be implemented in two phases. In the first phase, the interchange fee will be increased to 0.65% on UPI transactions of over ₹2,000 via PPIs. In the second phase, the interchange fee will be increased to 1.1%.
• The NPCI has also proposed a cap on the interchange fee to ensure that it does not become a burden on the customers. The cap on the interchange fee will be set at ₹30 for transactions of over ₹2,000 via PPIs.

• The proposed interchange fee on UPI transactions of over ₹2,000 via PPIs is expected to boost digital payments and encourage the use of UPI for high-value transactions in India. By incentivizing PPIs to promote UPI transactions for high-value payments, the government aims to reduce cash transactions and move towards a cashless economy.
• The implementation of the proposed interchange fee in two phases and the cap on the interchange fee ensure that it does not become a burden on customers while providing benefits to both the payment service providers and consumers. It remains to be seen how the implementation of the interchange fee will impact the use of UPI for high-value transactions and the overall growth of digital payments in India.

Conclusion

In conclusion, the proposed increase in interchange fee on UPI transactions of over ₹2,000 via PPIs is a positive step towards encouraging the use of digital payments in India. The benefits of this move include increased adoption of digital payments, reduced cash transactions, increased revenue for PPIs, and improved customer experience. The implementation of the interchange fee in two phases and the cap on the fee will ensure that it is not a burden on customers. It will be interesting to see the impact of this move on the growth of digital payments in India in the coming months and years.