NPCI's New Interchange Fee Structure on UPI Credit Lines May Transform Loan Market

NPCI's New Interchange Fee Structure on UPI Credit Lines May Transform Loan Market

Mumbai: The National Payments Corporation of India (NPCI) has introduced a new interchange fee structure for Unified Payment Interface (UPI) transactions involving credit lines, which could potentially revolutionize the loan market. Effective from August 16, 2024, the NPCI has set an interchange fee of 1.2% on interest-free credit transactions conducted via UPI, a move that experts believe could significantly impact the financial sector.

Under the new fee structure, detailed in a recent letter to UPI members, the NPCI has established a tiered fee system. For interest-free credit lines, the payer’s payment service provider (PSP) or the bank behind the UPI app will receive a fee of 5 basis points (bps), while the UPI app itself will earn 4 bps. Conversely, for transactions involving interest-bearing loans, both the payer PSP and the UPI app will each receive 4 bps. The remaining portion of the fee will be allocated to the issuing bank of the credit.

This adjustment in the fee framework is expected to create substantial shifts in how credit products are offered and managed through UPI platforms. Experts suggest that the change could stimulate increased competition and innovation in the credit market, potentially leading to more attractive loan products for consumers. By reconfiguring the financial incentives for all parties involved in UPI transactions, the NPCI aims to enhance the efficiency and accessibility of digital credit solutions, marking a significant development in India's financial ecosystem.