National Payments Corporation of India (NPCI) has notified that an interchange fee of up to 1.1 per cent will be applicable on merchant UPI (Unified Payments Interface) transactions done using prepaid payment instruments (PPIs)–wallets or cards–with effect from April 1.

The charge will be levied on UPI payments of over ₹2,000 made to online merchants, large merchants and small offline merchants. However, on certain merchant categories, a lower interchange starting from 0.5 per cent, might be levied as per applicable caps, NPCI said.

Interchange will not be applicable on P2P and P2PM transactions between bank accounts and PPI wallets. However, PPI issuers will need to pay 15 bps as a “wallet loading service charge” to the remitter bank for loading over ₹2,000 in the prepaid wallet.

This interchange pricing will be reviewed by September 30, 2023, as per the NPCI circular.

“Based on February 2023 annualised wallet payment transactions of ₹2 lakh crore, we estimate wallet loading charges could be over ₹100 crore across all wallet issuers, (assuming 30 per cent of wallet transactions are eligible given transaction-size rule and an estimated 60 per cent share of UPI in wallet-loading), and will be paid to banks,” Citi Research said in a note.

Additional revenue

Paytm Payments Bank, the largest KYC wallet issuer with over 10 crore users, said its wallets will be acceptable on all UPI QRs and online merchants with interoperability being enabled. It will also earn additional interchange revenue on Paytm wallet transactions made to merchants acquired by other payment service providers, payment gateways and payment aggregators.

“The bank will pay 15 bps of charges for adding more than ₹2,000, and in turn will also earn 15 bps when any other wallets use the bank to add more than ₹2,000 using UPI,” it said.

Last week, NPCI also asked UPI service providers and merchants to boost interoperability by clearly and prominently displaying the UPI payment option, by September 30, 2023.

Interoperability of wallets with UPI is seen increasing the scope, role, appeal and use cases of wallets, which can now be used on around 25 crore QR codes as of February 2023, industry experts said, adding that it will also increase payment alternatives for customers as they will also be able to pay via UPI or cards.

“Many merchants use wallets for accepting customer payments, for instance, at PoS. Interoperability will significantly ease collections for them since it will allow merchants to accept wallet payments regardless of the wallet being used by the customer,” Akash Sinha, Co-founder and CEO of Cashfree Payments said.