What’s in NPCI’s wallet? A plan to unclog banking channels

The National Payments Corporation of India (NPCI) is considering a lower, uniform interchange fee to encourage mobile wallet companies to step up their Unified Payments Interface (UPI) business, said people with knowledge of the matter. This comes as banks seek to reduce the stress of millions of small-value digital payments on their systems. Bank transactions via UPI are free of cost because of a government mandate.The NPCI and the mobile wallet industry are looking to settle on an interchange fee of 0.6% to 0.7% for all transactions, according to two bankers. Currently, 1.1% is levied on the value of any interoperable wallet-based transaction that takes place through the UPI system of Rs 2,000 and above. Wallet-based payments below this don’t attract a levy.

A uniform rate will encourage prepaid payment instrument (PPI) or mobile wallet issuers such as MobiKwik, Amazon Pay, Slice and Omnicard to push for interoperable QR code-based UPI payments by their customers.

Emailed queries sent to NPCI remained unanswered at the time of going to press.

“The hope is that once there is a revenue-generating opportunity, more wallet companies will incentivise their customers to undertake UPI payments via their wallets, instead of using their bank accounts directly,” said one of the bankers. “This will help unclog the banking system.”

Safety aspect

Regulators and the NPCI want to reduce the load of digital payments on the core banking system of lenders, but there is a safety aspect to this as well, said a top executive at a PPI entity.

“If a customer is exposing his or her bank account multiple times for UPI payments, there is a risk involved,” he said. “Wallets can help reduce the security risk of undertaking multiple small-value digital payments.”

The average ticket size of a single UPI payment is around Rs 1,300. Therefore, an interchange of 1.1% for transactions of Rs 2,000 and above means little revenue generation on the bulk of UPI payments, which is why wallet companies haven’t been too keen.

“There is an interchange of 1-1.5% on Rupay credit card payments made via UPI,” said the second banker cited. “Now, if there is an interchange on wallets as well, it will help new payment use cases to come up.”

While consumer-facing mobile wallets are a primary use case, these instruments are also used for paying small amounts to employees, vendors and others. Such recipients could start using the money in their wallets for regular UPI payments at merchant outlets.

In December 2024, NPCI settled 10.3 billion merchant-facing UPI payments worth Rs 6.3 lakh crore. In contrast, the mobile wallets issued by both banks and fintechs together settled Rs 9,239 crore through 444 million merchant-focused transactions.