Customers may soon be able to withdraw cash from merchants at some outlets using their UPI payments apps. In a March 16 circular, the National Payments Corporation of India (NPCI) — which owns and operates UPI — directed all member banks to enable cash withdrawal services at merchant locations starting June 1, 2020. Users can withdraw up to Rs 1,000/day in Tier 1 and Tier 2 cities, and up to Rs 2,000/day in Tier 3-6 cities. Customers can make 3 withdrawals per day on each UPI Virtual Payment Address (VPA).

The fee structure for such cash withdrawals is:

  • Interchange fee of 0.5% of the transaction value, capped at Rs 10, to be paid to the payee PSP by the remitter bank.
  • Customer convenience fee of up to 1% of the transaction value, capped at Rs 10, to be paid to the payee PSP by the remitter bank.
  • Switching fee to paid to the NPCI by the remitter bank
  • PSP fee to be paid to the payer PSP by the remitter bank

(For the customer withdrawing cash, the 1% fee is all they will pay. The merchant doesn’t seem to be paid anything.)

The payee can request for cash via their UPI app, such as Google Pay or PhonePe. The merchant will then provide the cash after receiving the cash withdrawal request on their PSP application. The Payee PSP has to ensure that the facility is available whether or not the customer makes a purchase with the merchant. Merchants have to clearly display that the UPI cash withdrawals are available, along with the charges the customer has to bear.

The NPCI said that the payee PSP and third-party application providers will be responsible for due diligence and onboarding of merchants.

Third-party application providers have to enable this as a separate feature within UPI payments, they also have to inform the user of the costs they will have to bear before confirming the withdrawal transaction. All notifications regarding the transactions should distinctly state the amount the customer has received in cash.

Last month, UPI payments app PhonePe had enabled people to transfer money to a merchant on the app, and get the amount in cash from the merchant – without any additional price or charge on the feature. The company had launched a pilot in Delhi NCR, allowing users to withdraw up to Rs 1,000 per day.

Cash withdrawals at PoS: RBI reiterated earlier directions

The RBI has been unsuccessfully trying to introduce cash withdrawals in the digital payments ecosystem. In several directives dating back to 2009, the RBI has directed banks to provide cash withdrawals at merchant PoS devices via debit cards and prepaid cards. In August 2019, the RBI had to reiterate its earlier directions after it realised that its earlier directions had not been implemented “in letter and spirit”. It directed banks to extend this facility to more merchants.

The Nandan Nilekani Committee on digital payments also recommended in June 2019 that the RBI provide cash-in and cash-out networks through which users can withdraw small amounts of cash from a merchant with a PoS device or QR.