The NPCI’s new circular on levy charges

Source: The post is based on the article “The NPCI’s new circular on levy charges” published in The Hindu on 6^th April 2023.

Syllabus: GS 3 – Economy

Relevance: About Prepaid Payment Instruments (PPIs)

News: The National Payments Corporation of India (NPCI) last week issued a circular to banks directing to levy charges up to 1.1% on merchant transactions made through Prepaid Payment Instruments (PPIs) wallets using UPI.

What are PPIs?

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Mobile wallet is the most prevalent form of PPI used in the country. The wallet must be pre-loaded by users with the intended quantity. PPIs can only be used in Indian rupees.

The amount can be loaded/reloaded against cash or through debit to bank account, or by using credit/debit cards, UPI, or any other approved payment method in India.

What is PPI interoperability?

Previously, in order to use PPI at any merchant, the concerned merchant had to be directly involved with the particular PPI provider. Transactions were not possible using PPIs with which the merchant did not have a direct tie-up.

These restrictions made the PPI wallets to be only used at specific locations. For example, a Paytm wallet could only be used at merchants that accepted Paytm QR codes.

However, the RBI has mandated interoperability among different PPI issuers to overcome this limitation.

PPI issuers have now tied-up with NPCI for issuing (a) interoperable RuPay PPI cards or (b) creating interoperable wallets on UPI platforms.

As a result, prepaid instruments in the form of wallets can be linked to UPI, creating interoperable wallets on UPI platforms.

How does PPI interoperability through UPI work?

Once PPI wallet is linked to UPI, customers can transact using Scan and Pay on all UPI interoperable QR codes.

This will enable the use of PPI wallets at all merchant locations and the user can also send/receive money to any other wallet user. Similarly, a merchant with any UPI QR code can now accept payments from any PPI issuer or mobile wallet.

This interoperability will speed up the growth of merchant transactions in rural areas and deepen digital financial inclusion by allowing its use at various places such as healthcare, transit, education, utility bills, etc.

Are there any charges paid by users and merchants doing wallet transactions on UPI?

No charges are applicable if a merchant is accepting UPI payments from a customer’s bank account. Charges are applicable only if the transactions above Rs 2000 are made using PPI Wallet.

Read More: UPI transaction fee: Do prepaid cards, wallets stand to lose?