After confusion among citizens regarding customers being charged for UPI transactions from April 1, Paytm founder and CEO Vijay Shekhar Sharma attempted to clear the air. In a lengthy Twitter thread, he explained the recent announcement by National Payments Council of India (NPCI) regarding interchange fee actually meant.
"Today I saw a trend of UPI when many news outlets and in turn many people misunderstood that UPI payments are going to be charged now on. There is absolutely no truth about it," Sharma said. "When UPI was launched it was a 'from' side of payment source. Meaning, you link your bank account to any UPI App, use UPI and make payments. Journey started with user making payment to 'UPI handle' something like abc@xyzBank."
Today I saw a trend of #UPI when many news outlets and in turn many people mis understood that UPI payments are going to be charged now on.
There is absolutely no truth about it. But it has a nuance to understand what actually is happening.
(1/n)— Vijay Shekhar Sharma (@vijayshekhar) March 29, 2023
Explaining how his fintech company began to use QR codes for transactions, Vijay Shekhar Sharma said, "While UPI needed handle to pay, Paytm was able to popularise a QR for merchant- a simple scan to make payments. Once we launched UPI on Paytm. Paytm user were able to pay a merchant from UPI linked bank account."
Later, Reserve Bank of India (RBI) introduced standardisation of QR codes, which meant that the same code would be accepted by different UPI payment apps. "So UPI became a scalable 'from' side of payment source.... That’s exactly what started the next level on payment revolution of India. The UPI QR became the method and carrier. (In payment industry lingo called: Payment Rail) RBI started to expand possible payment sources and extend power of QR network to so many other sources," Shekhar said.
So when customers have different payment source, on a QR for payments — it is like different types of cards used on a POS/EDC/card machine. Merchants using card machines are charged a fee depending upon the type of card used. Different cards such as credit, debit and prepaid cards have different charges, he added.
"What amount a card machine provider pays to payment instrument source company is called interchange and this when charged to merchants is called MDR (merchant discount rate). And MDR can be higher or lower than interchange as there is other business reason for it!" the Paytm CEO and founder tweeted, adding that when RBI announced prepaid wallets to be allowed to use UPI QR network, it was a great move to expand and support PPI wallet companies.
"They don’t have to sign up their merchants instead can become instantly available as payment source on all UPI QRs/merchants."
What ₹ a card machine provider pays to payment instrument source company is called Interchange and this when charged to merchants is called MDR (merchant discount rate) !
And MDR can be higher or lower than interchange as there is other business reason for it !
(10/n)— Vijay Shekhar Sharma (@vijayshekhar) March 29, 2023
To execute this plan, the NPCI added an extra variable of making it viable for wallet companies. "Just like all other payment source that can pay a UPI QR (bank account, credit overdraft or RuPay Card) this one needed some pricing to be paid to wallet company. So instead of making it costly for merchants (and always free for consumer) NPCI announced interchange of 1.1 percent for above Rs 2,000 payments for payments made using PPI/wallets. There is absolutely no charge for consumer nor to merchant for payments from UPI linked bank accounts!" Shekhar said.
"It is up to QR company to decide how do they pay this interchange to issuer. Right now government is paying for payment charges to be charged to merchants for payments from UPI! Our govt commitment to make good of this charge makes this a superb success!"
Read more: Bank transactions through UPI continues to be free for customers and merchants: NPCI
