Modification in PPIs

Modification in PPIs

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April 13, 2023

Making the headlines - An interchange fees till 1.1% on business UPI transactions using prepaid payment instruments was recently introduced by the National Payments Corporation of India (NPCI).

Description of PPIs

• PPIs are type of payment instruments that store some value in them which can help in buying goods and services.

• PPIs permit only the use of Indian Rupees.

• PPIs can be available in different forms as a means of entry to prepaid funds and they may include mobile wallets, secure tokens, physical smart cards, vouchers and other available methods.

• Issuing PPI – Banks and other Non-banking Financial Companies (NBFC) that adhere to the eligibility norms can roll-out PPIs.

• Mobile-based PPIs (mobile accounts and mobile wallets) are offered by those banks that have the facility of Mobile Banking Transactions as per existing RBI norms.

• For other entities, permission is only granted for issuing closed and semi-closed system PPIs.

The recent modifications done by NCPCI are enumerated here:

• As per business category codes, the interchange rates vary within 0.5% to 1.1%.

• The charges apply only when the transaction amount is greater than Rs. 2,000.

• The charges apply only when an individual has consented or accepted to a business dealing by using a PPI Wallet, i.e., there will be no charge for businesses that accept UPI amount through a consumer’s bank account.

• UPI-wallet-loading will also be charged and the same is to be borne by the wallet issuers to the bank accounts or remitter banks through which the payment is being debited.

The probable outcomes of this change:

• For merchants – Small shopkeepers and merchants may not be impacted much as the changes are applicable only on transactions greater than Rs. 2,000.

• However, in certain cases, MDR (Merchant Discount Rate) is imposed on certain UPI wallets and the change can lead to greater MDRs being levied on merchants.

• Subsequently, it can also impact the ability of many merchants’ to soak up the higher costs.

• At present, the MDR for UPI transactions for bank-to-bank transfer is zero.

• For customers – Officially, customers need not pay any charges even after this change. Anyway, businesses may transfer the additional burden to them through price rising or different other means.

Source - The RBI & The HINDU Business Line