Our associate Paytm Payments Bank (PPBL), the largest issuer of KYC wallets (prepaid instruments) with over 100 million users, recently announced that our full KYC wallet customers will soon be available to make payments on every UPI QR code and online merchant where UPI payments are accepted. The NPCI announced Wallet interoperability guidelines on March 24, 2023.
However, there were some rumours on some social media, which spread misinformation about UPI charges. Let’s understand the truth behind the NPCI circular.
It is important to note there is no charge to consumers whatsoever for UPI payments from bank accounts or from Paytm wallet or from RuPay credit cards.
The circular only relates to the introduction of a standardized interchange fee for wallet (Prepaid Payment Instruments) payments made through UPI after the enablement of interoperability, where wallets are connected to the UPI network.
This interchange fee is paid by the acquirer to the PPI issuer and does not directly impact either the merchant or the consumer. When a wallet user makes a payment, the merchant acquirer pays the interchange fee to the wallet issuer. Whether the acquirer will pass this fee to the merchant has not been determined.
The interchange fee of up to 1.1% is applicable only on transactions above ₹2,000 to online merchants and large retailers. Furthermore, interchange fees shall not apply to peer-to-peer (P2P) payments and small businesses in the P2PM category.
The Government of India has mandated a zero-charge framework for UPI transactions with effect from January 1, 2020. This means that charges in UPI are nil for users and merchants alike. Through an amendment to the Payment and Settlement Systems Act, 2007, it has made the Merchant Discount Rate (MDR) for UPI zero.
Our Founder and CEO Vijay Shekhar Sharma took to Twitter to dispel the misunderstandings surrounding the issue. We are summarising the key points from his tweet thread to offer a clear perspective on the matter.
UPI began as a “from” side payment source, allowing users to link their bank accounts to UPI apps and make payments using UPI handles. Paytm popularized the use of QR codes for merchants, enabling users to make payments by simply scanning the QR code. Once Paytm launched UPI, Paytm users were able to pay a merchant from a UPI-linked bank account.
RBI’s standardization of QR codes made all payment QRs UPI-compatible. This enabled UPI to become scalable “from” side of payment source.
Paytm’s QR revolution standardized by UPI spread across the nook and corner of the country and became the pride of India. It’s a phenomenon everyone across the world talks about and is powered by NPCI’s abilities and steered by RBI’s vision of #HarPaymentDigital.
Payment sources for UPI then expanded to include not just bank accounts but also wallets, credit cards, and other instruments. This started the next stage of India’s payment revolution as the UPI QR became the method and carrier (called payment rail in the payment industry).
The RBI started to expand possible payment sources and extend the power of the QR network to so many other sources.
With this, the role of UPI began to change from a payment source to a QR-led payment destination.
Different payment sources using QR for payments are talking to different types of cards used on a POS machine. A card merchant’s machine charges are based on the card type that is charged. Different cards such as credit, debit or prepaid carry different charges.
What a card machine provider pays to the payment instrument source company is called interchange and when this is charged to merchants is called MDR (merchant discount rate). The MDR can be higher or lower than interchange as there are other business reasons for it.
The RBI’s decision to allow prepaid wallets to use the UPI QR network benefits PPI wallet companies by instantly making wallets available as a payment source for all UPI QRs/merchants.
So just like all other payment sources that can pay a UPI QR (bank account, credit overdraft or RuPay Credit Card), wallet payments too needed some pricing to be paid to the wallet company. So instead of making it costly for merchants (and always free for consumers) NPCI announced an interchange of 1.1% for payments above ₹2,000 made using PPIs/wallets. There is absolutely no charge for consumers or merchants for payments from UPI-linked bank accounts. It is for the QR company to decide how they pay this interchange to the issuer. Currently, the government is paying for payment charges to be charged to merchants for payments from UPI.
There is no charge to the consumer for UPI payments from bank accounts or from wallets or from RuPay Credit Cards. For merchants, only if they agree to accept and choose to pay any charge levied by the QR company, they will be activated.
Merchants can pick and choose payment instruments (with or without charges) to accept payments from. QR now will offer many payment sources just like on card machines. The RBI’s masterstroke of making QR a payment network will take India’s mobile payment revolution to new heights.
Wallets are available as a choice to merchants who want to accept them. The pricing of the same is provided by the QR provider and only if the merchant accepts, it is enabled. Merchants have full control of accepting any payment instruments. The PPI/wallet industry is getting a big boost by being available on the UPI QR network. Today there are more than 130 crore PPI/Wallets in India which is more than debit cards. Before UPI QR merchant interoperability, each wallet company had to sign up its own merchants. Now the whole network of about 6 crore merchants are available for PPI/wallet users to pay. Many merchants were already paying some charges and this brings standardization to commercials too.