UPI Charges Increased by 1.1% on Merchant Transactions: All You Need To Know

The new UPI Charges rules from the new financial year has created a panic and havoc among the people. There are a lot of speculations and confusions over how are these charges going to impact them. Here is a detailed article to understand this.

UPI Charges

Beginning April 1, UPI merchant transactions over Rs 2,000 through pay-as-you-go instruments will be charged at 1.1 %, according to a recent circular by the National Payment Corporation of India (NPCI). The circular recommends implementing pay-as-you-go payment gadgets (PPI) costs for all merchant transactions made via UPI (unified charge interface) in India.

The 1.1% fee on UPI merchant bills above Rs 2,000 explained

The 1.1% fee on UPI merchant bills above Rs 2,000 refers to the new charges that will be applied to pay-as-you-go payment instruments, such as online wallets and prepaid gift cards, for transactions made through the unified payment interface (UPI) in India. Starting April 1, 2023, users will have to pay an additional fee of 1.1% on their UPI merchant bills above Rs 2,000, regardless of whether they use PPIs. However, these charges will not apply to peer-to-peer (P2P) and peer-to-merchant (P2M) transactions between bank accounts and PPI wallets.

The new fees have been proposed by the National Payments Corporation of India (NPCI) and aim to cover the costs involved in providing the service, which has been free so far. The introduction of interchange rates ranging from 0.5% to 1.1% will also ensure that not all transactions above Rs 2,000 will be charged the same percentage. The specific interchange rate will depend on the type of transaction, such as fuel purchases, telecom, utilities/post office, education, agriculture, grocery stores, mutual funds, government, insurance, and railways.

The PPI provider will pay the transit bank an upfront fee of 15 basis points for loading the transaction value above the stipulated amount of Rs 2,000. The NPCI will review the new fee structure on or before September 30, 2023. However, until then, the new fee structure will be the norm for UPI transactions made in India.

UPI Charges

Merchants with ticket items above Rs 2,000 may not be pleased with the new charges, and in one way or another, these costs will likely be passed on to consumers. Nevertheless, the new fee structure will allow for a more sustainable and efficient payment system in India and ensure that the service costs are adequately covered.

Will transferring money to a bank account through UPI have 1.1% charges?

It will likely be free for you and the receiver if you want to send money out of your bank account via UPI using BHIM, PhonePe, Google Pay, Amazon Pay, or any other UPI app.

In addition, if you need to pay any merchant out of your bank account through UPI, using BHIM, PhonePe, Paytm, or any other UPI app, it will be free for you and the merchant without an MDR charge.

But, if you need to pay a service provider out of your wallet or use Rupay credit cards via UPI, and the transaction quantity is much less than Rs. 2000, it will be free for you and the merchant and not using an MDR charge. However, if the transaction quantity is more than Rs. 2000, it’ll be free for you; however, the service provider can be charged up to one.1% MDR (depending on the service provider category)

Review of the fee by NPCI on or before September 30, 2023

The NPCI has stated that the authority will review the pricing on or before September 30, 2023. Until then, the newly introduced structure will be the norm for UPI transactions made in India.

Prepaid payment instruments and their inclusion in the fee

Prepaid payment instruments have become increasingly popular in India, and the inclusion of these instruments in the fee structure was widely expected by payment vendors. The NPCI does not charge the merchant discount rate (MDR) for UPI transactions. However, there are costs involved in processing payments on debit and credit card transactions. For example, UPI incurs a charge of Rs 2 for every transaction of Rs 800.

Breakdown of interchange fees based on transaction types

Only some transactions above Rs 2,000 will be charged the same percentage. The introduction of interchange is within the range of 0.5 to 1.1 per cent. For instance, customers might be charged 0% for UPI transactions made for gasoline purchases, 0.7% for telecom, utilities/post office, education, and agriculture, 0.9% for grocery stores, and 1% for mutual funds, respectively, government, insurance, and railways.

Expectations and impact on payment providers and merchants

The fee structure may cause concern for merchants with items above Rs 2,000. These prices may be passed on to the customers, making transactions more expensive for customers. However, payment providers are likely to benefit from the new fee structure as there were costs involved in providing the services, which were previously free.

The new fee structure will be in effect until September 30, 2023, when the NPCI will review it. Leaving you with the official tweet of the NPCI

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