Understanding Interchange on UPI Transactions via PPIs

byDilip PrasadLast Updated: August 22, 2023
Evolution of UPI

NPCI (National Payments Corporation of India) has recently implemented interchange fees of a maximum of 1.1 per cent for merchant UPI (Unified Payments Interface) transactions using prepaid payment instruments (PPIs). This interchange fee starts at 0.5 per cent and will vary based on the merchant category code (MCC). It is only applicable to UPI transactions exceeding ₹2,000 made to online merchants, small merchants, and large offline merchants. 

This new norm may impact how regular merchant transactions work for merchants and customers. This norm only affects the UPI transactions targeted at the merchant and will directly impact digital wallets utilised in the UPI mode. Before diving deep into the new interchange policy of NPCI, let us first understand what PPIs are and what changed after this policy came into practice with respect to UPI. 

What Are Prepaid Payment Instruments (PPIs)?

Prepaid Payment Instruments (PPI) are the accepted payment instruments that enable the acquisition of goods and services by utilising the stored value within these instruments. They are available in the market in the form of mobile wallets, secure tokens, physical smart cards, vouchers, or other payment methods, ensuring easy access to prepaid funds. PPIs can only be used in Indian rupees. They are only enabled by the bank, which has been allowed to service mobile banking transactions via PPIs like mobile accounts or mobile wallets. 

Recently, they have garnered significant attention in the news due to NPCI’s introduction of a 1.1% interchange fee on all merchant transactions conducted through PPIs. It is only applicable to merchant transactions and does not impact any bank-to-bank transaction. As of now, this interchange fee is facilitated in the range of 0.5% to 1.1% depending on the unique merchant category codes prevailing in a merchant transaction of the amount exceeding INR 2000.

How Is PPI Different from UPI?

It is common to confuse UPI with PPI as both are widely used for online and digitally-secured transactions. However, the recent norm highlight how both are different and subject to interchange fee if used together in a merchant transaction. UPI is the transfer of funds between two bank accounts, while PPI transactions utilise prepaid payment instruments such as mobile wallets, virtual payment modes, gift cards, etc. 

UPI helps in multiple tasks like bill payments, online shopping, recharges, ticket booking peer-to-peer transfers and merchant payments, whereas PPIs are utilised for online shopping, bill payments, and various other transactions. Besides, UPI is known to offer a higher payment limit than the payments made using PPIs. You may have used both payment interfaces, but now the advent of interchange fees will push a significant wall of change in digital payments.

Understanding NPCI’s New Norms for Interchange

Here is an example that decodes the new norm by NPCI with respect to UPI and PPI:

Suppose a consumer, John, tops up his UPI wallet with ₹2,500 from his bank account. As per the new regulations, any UPI app, in this case, would be required to pay an interchange fee between 0.5% to 1.1% of the loaded amount, depending on the interchange fee prevalent in the bank at the time. However, if John’s UPI account is with his own banking entity, no charges would be involved.

Now, let’s explore the scenario from the merchant’s perspective:

  • Scenario 1: John uses his UPI wallet to pay at a merchant’s store, where the QR code is linked to his bank account. In this situation, no interchange fee will be imposed.
  • Scenario 2: John opts to make a payment using his UPI wallet (as the PPI Issuer) at a merchant’s establishment where the QR code is associated with a different wallet; then he will be liable to pay an interchange fee of 1.1% of the total transaction value to the UPI platform used.


The recent announcement by NPCI on the levy of interchange fees on UPI transactions via PPIs created a buzz on the internet. The new norm was designed to impact the merchant transaction made using PPI. With every detail discussed above, you may now be able to assess the impact of this norm on wallet issuers and merchants. The norm has brought a change in the payment landscape in terms of revenue, cost, and other transactional considerations.


What does “Interchange on UPI Transactions Using PPIs” mean?

Interchange on UPI Transactions Using PPIs refers to the recent implementation of an interchange fee of up to 1.1% on merchant UPI transactions conducted through prepaid payment instruments (PPIs).

What are Prepaid Payment Instruments (PPIs) and how are they different from UPI?

Prepaid Payment Instruments (PPIs) are payment instruments that enable transactions using the stored value within them, such as mobile wallets and gift cards. UPI is a fund transfer system between bank accounts. The recent interchange norm highlights the difference and implications when used together in merchant transactions.

How does NPCI’s new interchange norm impact UPI and PPI transactions?

NPCI’s new interchange norm imposes a fee of 0.5% to 1.1% on UPI transactions made through PPIs exceeding ₹2,000. The norm does not impact regular UPI transactions between bank accounts.

What is the impact of the UPI interchange norm on wallet issuers and merchants?

Wallet issuers like Paytm may experience changes in revenue streams due to interchange fees, potentially affecting their profitability. Merchants accepting UPI payments may need to consider interchange fees in their overall transaction cost, leading to higher merchant discount rates and potential cost implications for customers.

How does the UPI interchange norm influence the payment landscape and transaction considerations?

The UPI interchange norm brings changes in revenue, cost, and transaction considerations for wallet issuers and merchants, impacting the payment landscape in the digital payment ecosystem.

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