NPCI slashes UPI usage fees to attract merchant transactions

The reduced UPI usage fees make it more attractive for smaller value transactions, incentive payments like cashbacks and merchant transactions.

NPCI slashes UPI usage fees to attract merchant transactions

With an aim to increase the rate of adoption for United Payments Interface (UPI), the National Payments Corporation of India (NPCI) has reduced the usage fees for various transactions. As per a note circulated by the NPCI, for UPI transactions up to Rs 1,000, the charge has been slashed to 10 paise. However, for transactions above  Rs 1,000, the fee has been retained at 50 paise. Let's take a look at what this means to users/stakeholders.

Person to Person transactions

UPI has so far been adopted mostly for person to person transactions. To make it as near cash as possible even for low-value transactions, NPCI has slashed the charges for transactions under Rs. 1,000 to 10 paisa from the current 25 paisa. The fee for UPI transactions over Rs. 1,000 remains unchanged at 50 paisa. Over 100 million UPI accounts have already been created, this reduction in fee would encourage users to move away from cash transactions even for small amounts.

Related: How Unified Payment Interface (UPI) can change the way you bank

Incentive payments
Incentive payments attracted the same fee as P2P transactions under the older regime. This has been changed now, and a flat fee of 10 paisa will be charged for such payments. Incentive payments are cashback or other such payments made by banks or payment service providers (PSPs) to their customers. The lower fee is expected to increase the UPI adoption by PSPs. Given that PSPs today are well-funded, in the long run, this should also benefit the end customers as the benefits will be passed on to them in the form of more cashbacks and incentives.

Related: UPI: Here's what you must know about this new-age payment mode 


Merchant payments
So far, merchant payments were charged a flat fee of 25 paisa for transactions under Rs. 1,000 and 50 paisa for transactions over Rs. 1,000. Under the new regime, the fees are different for on-us and off-us transactions. On-us transactions are those merchant transactions where the originating and beneficiary accounts are of the same bank. 

The usage fee has been revised to a flat 5 paisa for on-us transaction regardless of the amount involved. For off-us transaction, the fee is now set at 10 paisa per transaction plus 0.04% of the amount transferred. The off-us transaction charges are split between both the parties involved. 

Related: 10 Things you must know about the BHIM App

UPI Adoption

In March 2019, UPI recorded close to 800 million transactions worth Rs. 1.3 lakh crore. Out of these, over 85% were P2P transactions. The revised fees are aimed to push adoption in merchant payments as well. As the adoption increases, per transaction fees, could go down further for P2P transactions as well. See how digital payment methods are changing the face of the Indian economy

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