NEW DELHI: Inactivity fees on dormant PhonePe wallets do not affect users’ linked bank accounts or UPI transactions, according to clarifications issued by the company after notifications sent to some customers triggered confusion over how digital wallets operate.
The notifications apply only to the PhonePe Wallet, a prepaid payment instrument (PPI), and not to payments made through the Unified Payments Interface (UPI), where funds are debited directly from a user’s bank account.
The issue has highlighted a common misconception among consumers that their PhonePe account, UPI account and PhonePe Wallet are the same product. In reality, they operate independently and are subject to different rules.
A key concern among users has been whether inactivity charges can be recovered from their bank accounts if their wallet balance is insufficient.
PhonePe said no deductions would be made from linked bank accounts or through UPI, and wallet balances would not become negative.
The notifications have also raised questions among customers who actively use the PhonePe app, but still receive inactivity alerts. The company said wallet activity and UPI activity are tracked separately, meaning a user can make regular UPI payments while their wallet remains dormant.
As a result, a wallet may be classified as inactive even if the customer frequently uses the PhonePe app for QR-code payments, money transfers or bill payments through UPI.
PhonePe said affected users are notified 15 days before any inactivity fee is deducted from a wallet balance, allowing them time to reactivate the wallet, add funds, withdraw eligible balances or close the wallet if they no longer wish to use it.
The company also clarified that users do not necessarily need to upgrade to Full KYC status to reactivate a wallet. Reactivation can typically be completed through OTP verification and a wallet transaction.
Another source of confusion relates to cashback rewards. Cashback credits are generally stored in a separate gift card balance rather than the PhonePe Wallet itself, meaning receipt of cashback does not automatically indicate that a wallet is active or subject those balances to wallet inactivity deductions.
Wallet inactivity fees are not unique to PhonePe and are charged by some prepaid payment instrument providers to cover maintenance, compliance and operational costs associated with dormant accounts.
For users who have received a notification, the key consideration is whether they wish to continue using the PhonePe Wallet, reactivate it or close it, as the charges apply solely to wallet balances and not to bank accounts or UPI-linked transactions.
As digital payments become increasingly common in everyday life, understanding how wallets work and how they differ from UPI can help consumers make informed decisions and better understand the products they use:
DIFFERENCE BETWEEN UPI & WALLETS
When one makes a payment through UPI on PhonePe, the money is debited directly from your linked bank account. A PhonePe Wallet, on the other hand, is a prepaid payment instrument (PPI) where money is stored separately from your bank account.
This distinction is important because the inactivity fee applies only to the PhonePe Wallet and not to UPI-linked bank accounts.
HOW WALLET INACTIVITY CHARGES WORK
One of the concerns raised by users is whether PhonePe can deduct the inactivity fee from their bank account if their wallet has no balance. The answer is no.
If a user’s PhonePe Wallet has a zero balance and has remained inactive for an extended period, the inactivity fee will not be recovered from the user’s linked bank account or through UPI. Similarly, the wallet balance will not become negative.
In other words: – No deduction will be made from a linked bank account.
No deduction will be made via UPI.
A wallet with insufficient balance will not show a negative balance.
WHY SOME ACTIVE PHONEPE USERS MAY STILL RECEIVE NOTIFICATIONS
Some users have reported receiving inactivity notifications despite using PhonePe regularly for QR-code payments, bill payments, or money transfers.
This happens because wallet activity and UPI activity are tracked separately.
A customer may actively use PhonePe every day through UPI while their PhonePe Wallet remains unused for months or years. In such cases, the wallet can still be classified as inactive even though the user continues to use the PhonePe app.
ADVANCE NOTIFICATION AND USER CHOICES
According to PhonePe, affected users are notified 15 days in advance before any inactivity fee is deducted from the wallet balance.
During this period, users have the opportunity to: Activate their wallet.
Add money to the wallet if they wish to continue using it.
Withdraw eligible balances.
Review whether they want to continue maintaining the wallet.
QUESTIONS AROUND KYC
Some users believe they must complete Full KYC before they can reactivate their wallet. However, reactivating a wallet does not necessarily require converting a Minimum KYC wallet into a Full KYC wallet.
Users can activate their wallet by completing OTP verification and making a transaction using the wallet. Upgrading to Full KYC is not a prerequisite for activation.
UNDERSTANDING WALLET BALANCES & CASHBACK CREDITS
Another area of confusion involves cashback rewards. Many users assume that cashback balances are stored inside their PhonePe Wallet. In reality, cashback rewards are typically credited to a separate Gift Card Balance, which is distinct from the PhonePe Wallet.
As a result, receiving cashback does not automatically mean that a wallet is active, nor does it mean the cashback balance is subject to wallet inactivity deductions.
WALLET CLOSURE & CUSTOMER SUPPORT
Some users have reported difficulties while attempting to close their wallet through the app, including error messages or requests for additional verification.
In such situations, users are advised to contact PhonePe customer support for assistance with account closure or wallet-related issues.
WHY INACTIVITY CHARGES EXIST
Wallets are regulated as prepaid payment instruments and require maintenance, compliance, and operational support even when they are not actively used.
As a result, some wallet providers levy inactivity or maintenance fees on dormant wallets. The practice is not unique to a single company and has been observed among multiple wallet providers in the prepaid payments ecosystem.
The key takeaway in this case is that the inactivity fee applies only to the PhonePe Wallet, which is a separate prepaid payment instrument. It does not apply to UPI transactions, does not affect linked bank accounts, and does not result in negative wallet balances.
For users who have received a notification, the most important step is to determine whether they have an active PhonePe Wallet and decide whether they want to continue using it, reactivate it, or close it.
