Decoding Prepaid Payment Instrument (PPIs): Understanding UPI Circular and Its Impact On Customers - Explainer

Online wallets, smart vouchers, smart cards, and many more are prepaid payment instruments (PPIs) that users can use to do shopping, mobile recharge, etc. The customer can send money from these wallets to the merchant's bank account directly via UPI QR code.

UPI transaction over Rs 2000 via PPIs will attract an interchange fee of up to 1.1% from April 1, 2023, NPCI.

New Delhi: Unified Payment Interface (UPI) has seen a tremendous growth in the country in the past few years due to its inclusivity with third-party apps. UPI has become a popular payment medium among Indians as it remained free of most of charges that other payment medium have to pay during the transactions. UPI’s regulatory body, National Payments Corporation of India (NPCI) has done a lot of integration of its payment system with third party apps in recent years to make it more inclusive and convenient, whose results have seen with the tremendous growth of UPI payment in the country. PPI wallets have been permitted to be part of interoperable UPI ecosystems. Most of them don't have to pay any charge until now. 

However, NPCI has announced users will have to pay 1.1% of the transaction value if they are doing transactions of over Rs 2000 for using Prepaid Payment Instruments (PPI) on UPI from April 1, 2023.. NPCI further clarified after it stirred panic and confusion among customers, that the interchange charges introduced are only applicable for the PPI merchant transactions and there is no charge to customers. However, customers are still worried regarding the circular like who has to pay and what are PPIs. Let’s decode the circular full of jargons one by one in an easy way.

What are Prepaid Payment Instruments (PPIs)?

Online wallets, smart vouchers, smart cards, and many more are prepaid payment instruments (PPIs). They keep a particular prepaid amount that users can use to purchase items, mobile recharge, etc. For instance, Paytm wallet is an example of PPI.

What does NPCI circular say?

According to the new circular of NPCI, a charge of 1.1% will be applicable on UPI transactions over Rs 2000 done via prepaid payment instrument from April 1, 2023. It will also be applied on loading money in wallets via UPI. There are no charges for bank to bank transfer via UPI. 

Who will pay the interchange fee?

The merchant will pay to the receiver bank/payment provider on UPI transactions over Rs 2000 done via PPIs from April 1, 2023. Customers will not pay any amount on that.

What is a PPI payment via UPI?

Suppose, if you are doing a payment to a merchant via Paytm wallet. Once you scan the merchant’s QR code, it will allow you to direclty pay to the merchant’s bank account. So from April onwards, an interchange fee of up to 1.1% will be levied on transactions above Rs 2000 that the merchant has to pay, not you.

Does loading money in the wallets also attract the charges and do you have to pay?

NPCI circular also mentioned that an interchange fee up will be levied while transferring money to third-party wallets like Paytm, Phonepe, etc. Right now, you don’t have to pay that charge until and unless these third-party providers decide to pass on the charge to users.

Unified Payment Interface (UPI), a real-time mobile payment system that allows bank to bank transfer, has become the backbone of digital India. From payment transfer to tens of thousands to Rs 5-10 payment to tea shops, UPI has transformed the Indian economy drastically in the past few years. One of the reasons that links to the success of UPI's fabulous growth is no charges of transactions from peer-to-peer or peer-to-merchant until now. NPCI is all set to go away with free days of UPI.