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NPCI allows cash withdrawals using UPI from merchants


The National Payments Corporation of India has finally allowed cash withdrawal at merchant locations via UPI apps. The anticipated move by the umbrella organisation will enable the service in line with the existing Cash-at-PoS model.

NPCI, in this regard, has issued guidelines and compliance requirements to enable the service from 1st June 2020.

As per the notification, the transaction limit shall be Rs 1,000 per day in tier I and tier II centres and Rs 2000 per day in tier III to tier VI centres. To curb the misuse of the facility, only three transactions will be permitted per account per payee UPI ID.

Interchange fee of 0.5% of the transaction value, subject to a cap of Rs 5 will be applicable for these transactions. Issuers may decide to charge customers up to 1% of transaction value, capped at Rs 10.

NPCI and PSP fees shall be applicable as per the existing UPI P2P (peer-to-peer) model.

Given that merchant discount rate or MDR has been reduced to zero, the move will undoubtedly add a revenue stream for third-party apps such as PhonePe, Google Pay and Paytm.

Interestingly, PhonePe had already rolled out the service in January, exactly two months before the final circular. Its rivals criticised the Walmart-owned company for launching the PhonePe ATM feature without any rules formulated by NPCI.

It’s worth noting that cash withdrawal using UPI apps is based on the P2P model. Under this, payee payment service providers will levy the interchange fee.

Last month, in a conversation with Entrackr, Sameer Nigam, CEO of PhonePe, also clarified that the PhonePe ATM feature was based on the P2P model.

As NPCI has framed all necessary norms for cash withdrawal via UPI, the aforementioned third party players, including others, are likely to adopt it soon.

In the compliance mentioned in NPCI notification, it is outlined that the payee PSP and third-party apps shall be responsible for due diligence and onboarding of merchants as per regular merchants onboarding applicable rules.

To ensure transparency, NPCI will allocate a separate MCC (Merchant Category Code) to these transactions. It also asks the acquirer to provide that the merchant levies no additional charges on the customer.  

Ever since the concept of cash via UPI came into play, industry experts, stakeholders have raised their concerns related to counterfeit currency and money laundering. NPCI, in its circular, has clarified that acquiring PSP shall ensure the provision of a customer service grievance redressal mechanism including issues mentioned above.

Acquiring PSP shall also ensure compliance with the instructions stipulated by RBI in respect of KYC(know your customer) and AML (anti-money laundering).

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