The National Payments Corporation of India (NPCI) has notified that an interchanged fee of 1.1 per cent on UPI transactions of more than Rs 2000 through Prepaid Payment Instruments (PPIs).

The step has been taken in order to increase the revenue of payment service providers and banks. The interchange pricing will be reviewed by 30 September 2023. The interchange fee varies for the different categories of merchants. It ranges from 0.5 per cent to 1.1 per cent. In certain categories, a cap is also applicable in certain categories.

The new fee on UPI transactions will only be applicable to merchants who accept payments over Rs 2,000 using prepaid payment instruments (PPIs), Individual users making personal transactions using UPI will not be charged any additional fees.

As per NPCI, the interchange fee is in the line with the recommendations of the committee on the Payments and Market Infrastructures and the World Bank to charge 1.15 per cent for UPI transactions. UPI is one of the most emerging preferred payment systems in India, especially after demonetisation and the pandemic. 

In this regard, Mihir Gandhi, Partner and Leader, Payment Transformation, PwC India said, "This is a step in the right direction to make the UPI pricing market-driven and competitive to incentivise the UPI players to recover costs and make additional investments as required. Further, the interoperability amongst PPIs via UPI will make PPIs more attractive for various use cases and ultimately increase the number of digital payment transactions.

There are a couple of PPIs in India, including Paytm, PhonePe, and Google Pay. The NPCI believes that by incentivising PPI providers to promote UPI transactions for higher amounts, the average transaction value of UPI transactions will be increased."