The National Payments Corporation of India (NPCI) is expected to announce a 1.2% interchange fee for creditline on the Unified Payments Interface (UPI) transactions, CNBC TV18 reported, citing sources.
NPCI may issue a circular detailing this change next week. An interchange fee is the commission merchants pay to credit issuers for each transaction. This fee constitutes 90% of the merchant discount rate (MDR) that merchants pay to banks for processing transactions.
Credit issuers receive 100% of the interchange fee, while other entities, such as card networks, customer banks, merchant banks, and NPCI, receive 5-15 basis points. The interchange fee helps cover the risk and interest on the capital provided by credit issuers. Importantly, consumers do not incur any fees in these transactions.
Notably, the negotiations are ongoing between NPCI, banks, and UPI apps regarding each party’s share of the revenue. Third-party apps (TPAPs) like PhonePe, Google Pay, and Paytm are likely to receive a commission of 0.08% (8 basis points) for each transaction.
The payment service provider (PSP) bank, which enables UPI functions for TPAPs, is also expected to receive around 8 basis points as a commission for transactions.
The credit line feature on UPI was announced about nine months ago but has yet to gain traction. A credit line on UPI essentially acts as a pre-approved loan linked to a customer’s UPI account. The credit line will not be available for person-to-person (P2P) transfers, as these transactions do not involve an interchange fee and will be declined.