The Short Answer: Do You Pay a Fee?
No, for most people, nothing has changed. If you use UPI to pay a friend or scan a QR code to pay a merchant directly from your bank account, these transactions remain completely free for you. The National Payments Corporation of India (NPCI) and the government
have repeatedly clarified that standard bank account-to-bank account UPI payments have no charge for customers. This covers over 99.9% of all UPI transactions.
So, What Are These Merchant Fees?
The fee in question is called an “interchange fee.” It applies specifically to a certain type of payment: when a customer pays a merchant using a Prepaid Payment Instrument (PPI) through UPI for an amount over ₹2,000. This fee, which can be up to 1.1%, is not paid by the customer. Instead, it is a charge handled between payment service providers on the backend. It's paid by the merchant's bank or payment processor to the company that issued the customer's wallet.
What is a 'PPI' Transaction?
PPI stands for Prepaid Payment Instrument. Think of this as your digital wallet, like Paytm Wallet, PhonePe Wallet, or Amazon Pay Wallet, where you load money in advance. A normal UPI payment transfers money directly from your bank account. A PPI-based UPI payment uses the money you have already loaded into your wallet to pay by scanning a UPI QR code. The new interchange fee only applies to these wallet-based payments when they are over ₹2,000 and made to a merchant. Sending money to a friend or another individual (peer-to-peer) remains free, regardless of the method.
Who Actually Pays the 1.1% Fee?
The fee is borne by the merchant, not the customer. The interchange fee is essentially a cost for the merchant's payment provider for processing a transaction that originated from a competitor's wallet. This system is similar to the Merchant Discount Rate (MDR) that has long existed for credit and debit card payments. The fee rates vary by merchant category, with sectors like fuel seeing a lower rate (0.5%) and others like insurance at a higher one (up to 1.1%). Small offline merchants are also exempt from this fee.
Why Were These Fees Introduced?
The introduction of these fees is aimed at making the digital payments ecosystem financially sustainable. Payment companies like PhonePe and Paytm, as well as banks, incur costs for building and maintaining the infrastructure, ensuring security, and processing billions of transactions. While standard UPI remains free for users, this interchange fee provides a revenue stream for wallet issuers and payment gateways, encouraging them to continue investing in the ecosystem and promoting competition. It ensures that the companies providing these convenient services can cover their operational costs without having to rely solely on government subsidies.
