Explained | Will consumers now have to pay for transactions made with PPIs via UPI?

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The story so far: Earlier last week, the National Payments Corporation of India (NPCI), which governs UPI, in a circular issued directly to banks, intimated that they can now levy charges on merchant transactions made through Prepaid Instrument wallets using UPI. After the information was leaked to the media, the NPCI issued a clarification stating that normal bank-to-bank UPI transactions will not be charged and that customers will not have to pay for transactions made via PPI on UPI. It said that the new interchange charges are only applicable for Prepaid Payment Instruments’ (PPI) merchant transactions. The interchange fee, generally associated with card payments to cover the transaction cost, has now brought PPI wallets also under its fold.

What are PPIs?

Prepaid Payment Instruments (PPIs) are payment methods that can be used to purchase goods and services and send/receive money by using the stored value in the wallet. Users have to pre-load the wallet with a desired amount. The amount can be loaded/reloaded against cash or through debit to bank account, or by using credit/debit cards, UPI, or any other approved payment method in India. PPIs can only be used in Indian rupees. PPIs can be in the form of mobile wallets, physical smart cards, secure tokens, vouchers, or any other method that allows access to prepaid funds.

What is PPI interoperability?

Previously, to use PPI at any merchant, it was necessary that the concerned merchant was engaged directly by the specific PPI issuer (specific network). All PPIs with which the merchant did not have a direct tie-up would get rejected. The most prevalent form of PPI used in the country is the mobile wallet, and this restriction meant that customers of one specific mobile wallet could spend the money in the wallet only at specific merchant locations which were directly tied up with the same PPI wallet provider. For example, if you had a Paytm or Mobikwik wallet, you could only use it at merchants that accepted Paytm or Mobikwik QR codes. To overcome this limitation of PPIs, the RBI has mandated interoperability among different PPI issuers. Subsequently, PPI issuers tied-up with NPCI for issuing (a) interoperable RuPay PPI cards or (b) creating interoperable wallets on UPI rails. Prepaid instruments in the form of wallets can now be linked to UPI, thus creating interoperable wallets on UPI rails.

How does PPI interoperability through UPI work?

After linking one’s PPI wallet to UPI, customers can transact using Scan and Pay on all UPI interoperable QR codes. This will enable the use of PPI wallets at all merchant locations. The user can also send/receive money to any other wallet user.

Similarly, a merchant with any UPI QR code can now accept payments from any PPI issuer or mobile wallet. PPI on UPI will speed up the growth of merchant transactions in rural areas and further deepen digital financial inclusion by catering to use cases such as healthcare, transit, education, utility bills, etc.

Do merchants have to pay for accepting wallet transaction on UPI?

The PPI enabled merchants were already paying charges to the PPI issuer for acceptance of mobile wallets or prepaid cards. Now the charges are aligned at a network level with some standardisation. However, each merchant can work with their preferred acquiring entity.

Now, for using prepaid payment instruments (PPIs) such as gift cards, wallets etc for transactions on UPI, an interchange fee of up to 1.1% has been levied from April 1, 2023. The charges are applicable if the transaction is more than ₹2,000. If you are a merchant and accepting UPI payments from a customer’s bank account, then there are no charges applicable. Charges are applicable only if you have accepted or consented for the transactions made using PPI Wallet.

Are there any charges to be paid by consumers holding wallets for PPI on UPI transactions?

Officially there are no charges to be paid by the customer. However, merchants may pass on the additional burden to customers by way of price increase or some other means.