News Excerpt: 

To increase the adoption of credit on the United Payments Interface (UPI), the National Payments Corporation of India (NPCI) is looking at an interchange fee for transactions. 

About the news:

• Credit lines on UPI received approval from the Reserve Bank of India (RBI) last September. Back then, the central bank said that the banks may stipulate terms and conditions for credit lines as per their board-approved policies. 
• This move aligned with RBI and NPCI’s goal of deeper UPI penetration across India. NPCI has clarified that no charges will be levied on normal UPI payments of customers, which are mostly bank account-to-bank account transactions.
• It is expected that the interchange fees will be lower than that for a credit card transaction. Credit card transactions generally have an interchange fee of 1.8-2%. It could be kept at 1-1.2% in a bid to push adoption.
• The interchange fees basically vary by the merchant category. 

• At present, there is no interchange fee defined by NPCI for the credit line on UPI. A credit line on UPI is a pre-sanctioned loan from banks. 
• The uptake of credit lines on UPI has not picked up because there is no clarity yet on the interchange fee between banks and NPCI. Without clarity on the fee structure, it is not possible to push the adoption in the market.

What are UPI Interchange Fees?

• UPI interchange fees refer to the charges paid between a Prepaid Payments Instruments (PPI) Wallet (e.g., PayTM, Mobikwik, Amazon Pay) and a bank account for processing and settling UPI transactions. 
• Specifically, these fees are applicable when a UPI transaction takes place between a PPI Wallet and a bank account. 
• They facilitate revenue-sharing and promote the interoperability and acceptance of UPI across various payment platforms.

Significance of UPI Interchange Fees:

1. Incentivizing PPI Wallets and Banks: UPI interchange fees will act as incentives for PPI Wallets and banks to actively participate in the UPI ecosystem. By receiving these fees, these entities are motivated to invest in infrastructure, technology, and customer support, fostering healthy competition and driving innovation in the digital payments landscape.
2. Promoting Interoperability: Interchange fees will play a vital role in promoting interoperability between PPI Wallets and banks. They facilitate the settlement process by compensating participating entities for their services. This encourages collaboration and ensures seamless transactions between PPI Wallets and bank accounts.
3. Maintaining Service Quality: UPI interchange fees contribute to maintaining the overall quality of UPI services. The revenue generated allows PPI Wallets and banks to invest in system upgrades, security measures, and infrastructure development. This ensures users experience reliable and efficient UPI transactions, enhancing trust in the digital payment ecosystem.