UPI has become the simplest way to pay, whether you’re buying groceries, booking a cab, or settling bills with friends. Recently, NPCI released a new guideline on interchange fees, and it created a lot of confusion for both users and businesses. This article breaks down the NPCI circular on UPI, explains which payments actually attract UPI charges, who pays them, and how they impact UPI for merchants, all in simple, human language.

What is the NPCI circular on UPI interchange fees about?

NPCI has introduced an interchange fee of around 0.5%–1.1% on specific high-value UPI transactions. But here’s the key part. These UPI payment charges apply only when someone pays a merchant using a PPI wallet (such as PhonePe Wallet, Paytm Wallet, Amazon Pay Wallet) via UPI and only when the transaction value is above ₹2,000.

This means that regular bank-to-bank UPI payments remain completely free for customers. No change. No hidden UPI transaction charges.

The new rule mainly affects medium and large merchants who receive high-value payments through UPI using PPIs. So if a customer scans a QR code using a wallet instead of a bank account, that’s where the interchange may apply.

What is a UPI Interchange Fee?

If you’re wondering “what is interchange fee?” let’s break it down in simple terms.

An interchange fee is a small amount paid between payment service providers (for example, between a merchant’s payment provider and the customer’s wallet provider). It’s not charged directly to the customer.

Interchange fee meaning: It’s a backend settlement fee that helps cover the cost of processing, security, and infrastructure for UPI wallet transactions.

Simple Example

You pay a merchant ₹3,000 using a PhonePe Wallet via UPI.
The merchant’s payment provider (say PayU) needs to pay the wallet provider a small fee. Let’s assume 1.1%.
This cost becomes part of UPI merchant charges and does not get deducted from your payment as a consumer.

So the interchange fee affects the merchant side, not you.

Which UPI transactions have interchange fees?

Here’s the simplest breakdown:

Transaction Type	Is Interchange Applicable?	Explanation
Wallet → Merchant via UPI (above ₹2,000)	Yes	Treated as a PPI-on-UPI payment.
Wallet → Merchant via UPI (below ₹2,000)	No	No interchange.
Bank account → Merchant via UPI	No	Regular UPI stays free.
Bank account → Bank account (P2P)	No	Regular transfers remain free.
Wallet loading from bank account	PPIs pay 15 bps	Consumers may not be charged.

Practical Example

You pay ₹1,500 at a store using your PhonePe Wallet → No interchange.
You pay ₹2,500 at an electronics store using the same wallet → Interchange applies.
You pay using your bank account via UPI → Zero UPI charges in all cases.

Who Actually pays the UPI interchange fee?

The merchant’s payment provider pays the interchange fee, not the customer.

However, merchants may see these reflected under UPI merchant fees, depending on their payment gateway’s pricing.

Participant	Responsibility
Customer	Pays nothing.
Merchant	May bear UPI merchant charges if their provider passes it on.
PPI issuer	Gets the interchange amount.
Payment gateway	Pays interchange to PPI issuer.

This is why UPI for merchants may include certain fees only for wallet-based high-value transactions.

Will recharging digital wallets come at a cost?

NPCI also introduced wallet loading charges of up to 15 basis points (0.15%) for PPI issuers when customers load their wallets using UPI.

Consumers are not directly charged right now.
But wallet companies may decide their own pricing in the future, so customers should stay updated.

This is why you may see conversations around upi ppi charges, upi wallet charges, and whether wallet loads remain free.

Are regular UPI payments still free?

Yes, they are still completely free. All your everyday UPI payments, whether you’re sending money to someone, paying bills, scanning a merchant QR, or checking out online, remain free as long as the payment is made from your bank account.

There are no UPI charges, no UPI payment charges, and no UPI transaction charges for regular users.

Why was the UPI interchange fee introduced?

The short answer: to make the UPI ecosystem commercially sustainable.

UPI scaled massively, but banks and PPI providers bear infrastructure, fraud-control, and processing costs. The interchange helps them recover part of these expenses for wallet-based transactions.

What businesses can do?

Map your UPI payment volume: identify how many customers use wallets.
Encourage high-value payments through bank accounts to avoid extra UPI merchant fees.
Use a smart payment gateway like PayU that automatically optimises routing.
Educate cashiers and staff on PPI-on-UPI workflows.
Track changes as NPCI updates policies often.

Conclusion

UPI continues to be one of India’s most customer-friendly and low-cost payment methods. Only a very specific type of transaction, high-value wallet-on-UPI payments is now subject to interchange fees. For most customers and small merchants, nothing changes.

If you’re a business dealing with high-value digital payments, a partner like PayU can help you navigate these rules, optimise costs, and ensure seamless checkout experiences for your customers.

FAQs

1. What are UPI interchange fees?

UPI interchange fees are backend settlement charges applied only on high-value wallet-on-UPI payments above ₹2,000. They are not charged to customers but are part of merchant-side processing.

2. Do customers have to pay UPI interchange fees?

No, customers don’t pay anything extra. Whether you pay using your bank account or a PPI wallet, the transaction amount remains the same for you. The interchange is handled at the backend between payment providers.

3. Who pays the UPI interchange fee?

The interchange fee is paid by the merchant’s payment provider to the wallet issuer. Depending on the merchant’s agreement with the payment gateway, this cost may reflect under UPI merchant charges, but the consumer remains unaffected.

4. Are all UPI transactions subject to interchange fees?

Not at all. Only wallet-based UPI merchant payments above ₹2,000 qualify for these fees. Everyday payments like P2P transfers, online bill payments, and bank-to-merchant UPI transactions remain free.

5. Why were UPI interchange fees introduced?

The fee was introduced to ensure the long-term financial sustainability of the UPI ecosystem. It helps banks and wallet issuers cover costs related to security, technology, compliance, and growing transaction volumes.

6. What types of transactions might attract interchange fees?

Wallet-to-merchant UPI payments above ₹2,000 are the main category attracting interchange fees. These usually occur when someone pays using a PPI wallet app (like PhonePe or Paytm Wallet) over UPI for higher-ticket purchases.

7. What transactions are exempt from UPI interchange fees?

All bank-to-bank UPI payments, whether person-to-person or person-to-merchant are exempt. Low-value wallet payments under ₹2,000 and most routine UPI payments also do not attract any interchange fees.

8. What is the difference between an interchange fee and a processing fee?

An interchange fee is a settlement charge exchanged between payment ecosystem participants like issuers and acquirers. A processing fee, however, is a merchant-facing charge collected by the payment gateway for enabling and handling the transaction.