The abolition of the fees has been made for an interim period until April 30, 2020, according to the circular.
The same is not applicable to services like mandates, EMI, overdraft account, and business-to-business (B2B) collections and payments.
The move to do away with these transactions fees comes after the abolishment of the Merchant Discount Rate (MDR).
With banks not able to charge merchants any MDR for RuPay debit card and UPI transactions, it was expected that they would be given the breather of not paying a fee to other stakeholders.
However, the move may hit revenues of digital payments players like PhonePe, Google Pay and Amazon Pay which have spent heavily to grab a greater market share in the UPI ecosystem.
As the abolishment of the UPI interchange and PSP fees for all domestic UPI merchant transactions comes with retrospective effect from January 1, it is not yet known how the fee already collected so far will be recovered.
The waiver of the PSP fee would hardly leave any room for Third Party Apps (TPAs) such as Google Pay, PhonePe, Amazon Pay and others to earn anything on UPI transactions.
On every UPI P2M transactions, these TPAs on average make about Rs. 0.30 - 0.35 through PSP fee.
It remains to be seen what future revenue generation streams can help these digital payments players stay afloat.