Keep the Wallets Away!

“UPI Transactions above Rs. 2,000 made via PPIs such as wallets, credit cards will have an interchange fee of 1.1% from April 1^st onwards.

Well, it is April 1^st today, and the charges are for real. The first questions that come to mind are, WHAT, HOW, AND WHY???So here are the answers to your questions: –

The National Payments Corporation of India (NPCI), in a circular, suggested that “PPI fees be applied to merchant transactions on UPI.”

Let us first understand what Prepaid Payment Instruments (PPIs) are. So basically, these instruments help you make easy purchases and sales of goods and services. These instruments are pre-loaded just like your pens before entering the examination halls (although you might never use those pens but still…).

There are three types of PPIs:

1. Closed system PPIs: Example Gift Cards. Using these, you can neither withdraw cash nor make settlements to any third party. You can only gift these to someone on any occasion.
2. Semi Closed system PPIs: Example, Paytm, Gpay, YONO, etc. Semi closed because you cannot withdraw cash using these, but you can use them at merchants for purchase and sale.
3. Open system PPIs: Examples: debit and credit cards. These are like management students; you name the activity, and they would have done it. From cash withdrawals to paying at the merchants, they are open to all.

Now that we have a pretty clear idea about the system of PPIs, let us understand how these charges will apply.

Let us suppose that you are going to purchase a t-shirt for yourself from Pantaloons. The t-shirt costs you Rs. 2,500. You will scan the bar code of any UPI enabled app and pay the merchant. Now, if you pay this amount of Rs. 2500 from your linked bank account, no transaction charges will apply. But if you pay these Rs. 2500 from your Paytm/PhonePay wallet, the merchant has to bear the interchange fees (transaction charges that a merchant has to pay to the payment service provider, every time a customer processes a transaction) of 1.1%, i.e., Rs. 27.5, and the merchant will pay these Rs. 27.5 to Paytm.

To be honest, this levying of fees is not going to make much of a difference, as 99.9% of total UPI transactions are made through linking the bank account in any UPI enabled app.

You ask me, Why this now? So, the banks and payment service providers have had enough of free ki service and they wanted a way out to earn some revenue. Therefore, the interchange fee is levied to cover the costs of accepting, processing, and authorizing transactions.

Till the time banks are earning revenue, all is well, but I really hope the burden of the charges will not fall upon the ultimate customer. Although NPCI has issued a clarification that customers will not have to pay any fees, you never know if some shopkeepers will shift the burden onto the customers and make that 2500/- t-shirt a 2527.5/- one.

Nevertheless, let us first see if this fee is a source of income for the banks or service providers or not.

Till then, keep the wallets away!