NEW NPCI RULES
1. Context
Recently, the National Payments Corporation of India (NPCI), the retail payments and settlement body, clarified that there are no charges for bank account-to-bank account-based UPI payments, which are the “normal” UPI payments for most people.
2. New NPCI Rules
- NPCI (National Payments Corporation of India) has introduced an interchange charge for prepaid payment instrument (PPI) merchant transactions, but customers will not be charged.
- Reports had suggested that a 1.1% interchange fee would apply to UPI transactions made through PPI instruments (wallets or cards) for transactions over Rs 2,000.
- NPCI clarified that this charge applies only to PPI merchant transactions and not to normal bank-to-bank UPI payments.
- PPI transactions involve online wallets (e.g., Paytm Wallet, Amazon Pay Wallet) and preloaded gift cards.
- The change is in line with recent regulatory guidelines allowing PPI wallets to be part of the interoperable UPI system.
3. National Payments Corporation of India (NPCI)
The National Payments Corporation of India (NPCI) is an important financial institution in India that plays a pivotal role in the country's digital payments landscape. It was established in 2008 as a not-for-profit organization and is headquartered in Mumbai, Maharashtra. NPCI operates under the guidance and ownership of major Indian banks and financial institutions, including the Reserve Bank of India (RBI).
Key functions and responsibilities of the National Payments Corporation of India (NPCI) include:
- Payment Systems Management: NPCI oversees and manages various retail payment systems in India, facilitating electronic funds transfer, retail payments, and settlement processes. Some of the prominent payment systems it operates include the Unified Payments Interface (UPI), Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT), and Real-Time Gross Settlement (RTGS).
- Digital Payments Innovation: NPCI is responsible for introducing and promoting innovative digital payment solutions in India. UPI, which allows for instant and secure peer-to-peer and peer-to-merchant transactions, is one of the most notable innovations developed and operated by NPCI.
- Interbank Transactions: NPCI ensures interoperability among various banks and financial institutions, enabling seamless fund transfers and transactions between different banks' systems. This promotes financial inclusion and ease of digital transactions for consumers and businesses.
- Retail Payments Infrastructure: The organization plays a crucial role in building and maintaining the infrastructure required for efficient retail payments and electronic fund transfers. This includes the development of payment interfaces, security protocols, and standards.
- Promotion of Financial Inclusion: NPCI actively promotes financial inclusion by enabling access to digital payment systems for individuals in remote and underserved areas of India. It also supports government initiatives to disburse benefits and subsidies directly to the beneficiaries' bank accounts.
- Security and Fraud Management: NPCI takes measures to enhance the security of electronic payment systems and implements fraud detection and prevention mechanisms to protect consumers and financial institutions from cyber threats and fraud.
4. What is UPI?
UPI, or Unified Payments Interface, is a real-time payment system and an instant interbank electronic funds transfer system in India. It enables individuals to make electronic payments and transfer funds between bank accounts using their mobile phones or computers. UPI was developed by the National Payments Corporation of India (NPCI) and is regulated by the Reserve Bank of India (RBI). Here are some key features and aspects of UPI:
- Real-Time Transactions: UPI allows for instant and real-time transactions, enabling users to transfer money and make payments quickly, 24/7.
- Bank-to-Bank Transfers: With UPI, users can transfer money directly from one bank account to another without the need for intermediary steps. This promotes seamless and efficient fund transfers.
- Mobile Apps: UPI transactions are typically conducted through mobile apps provided by banks and third-party payment service providers. Users link their bank accounts to these apps to initiate and authorize payments.
- Virtual Payment Addresses (VPAs): Instead of sharing sensitive bank account details, UPI users can create a unique VPA, which acts as an alias for their bank account. This enhances security and privacy during transactions.
- QR Code Payments: UPI supports QR code-based payments, allowing users to scan QR codes at merchant outlets or websites to make payments instantly. This is commonly used for retail purchases.
5. Old UPI rules
Here are some key aspects of the UPI rules that were in place at that time:
- Transaction Limits: UPI transactions were subject to certain daily and per-transaction limits. For example, individual users typically had a daily transaction limit, and there were limits on the maximum amount that could be transferred in a single transaction.
- Authentication Methods: UPI transactions required authentication through methods such as Mobile Personal Identification Number (MPIN), UPI PIN, or biometric authentication, depending on the specific UPI app and the user's preferences.
- Transaction Charges: Many banks and UPI service providers did not charge customers for making UPI transactions. However, some charges might apply for specific services, such as transferring money from a UPI-linked bank account to another bank account. These charges varied between banks and service providers.
- Transaction Types: UPI supported various types of transactions, including person-to-person (P2P) transfers, person-to-merchant (P2M) payments, bill payments, and more. Users could also check their account balance and transaction history through UPI apps.
- Security Measures: UPI transactions were secured through encryption and multi-factor authentication to protect user data and financial information.
- UPI Apps: Numerous banks and third-party apps offered UPI services. Users could link their bank accounts to these apps and use them for making UPI transactions.
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For Prelims: National Payments Corporation of India (NPCI), Prepaid payment instrument (PPI), Reserve Bank of India (RBI), Virtual Payment Addresses (VPAs), Unified Payments Interface (UPI), Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT), and Real-Time Gross Settlement (RTGS).
For Mains: 1. Discuss the role and significance of the National Payments Corporation of India (NPCI) in the context of India's payment ecosystem. How has NPCI contributed to the country's progress towards a less-cash economy? (250 words).
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Previous year Question1. Consider the following statements: (UPSC 2017)
1. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country.
2. NPCI has launched RuPay, a card payment scheme
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer: C
2. With reference to digital payments, consider the following statements: (UPSC 2018)
1. BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2. While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer: A
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Source: The Indian Express
