The government is actively working to improve the Unified Payments Interface (UPI) system.
According to an ET report, merchant charges might soon be reinstated for UPI and RuPay debit card payments.
Currently, businesses do not incur any fees when customers use UPI or RuPay debit cards.
However, before 2022, merchants had to pay a fee called the Merchant Discount Rate (MDR) to banks for processing transactions.
Possible Return of Charges on UPI and RuPay
If these charges are reinstated, they will not directly affect customers, as MDR applies only to merchants.
A banker informed ET that a proposal to impose MDR on UPI payments has been submitted to the central government and is currently under consideration.
Another banker noted that MDR is already applied to transactions involving Visa, Mastercard, and credit cards.
The industry believes that similar charges should also be implemented for UPI and RuPay debit card transactions.
Understanding MDR Payments and Business Impact
Currently, large merchants pay MDR for credit card and Mastercard or Visa debit card transactions. Before 2022, merchants paid less than 1% of the transaction amount as MDR.
Some argue that with UPI becoming a popular payment method, big businesses should not be exempt from such charges.
Fintech companies suggest that larger businesses can absorb these small fees without difficulty.
Payment companies argue that reintroducing MDR is vital for sustaining businesses.
New policies have increased operational costs, and the absence of transaction charges on UPI payments has led to losses for many businesses.
To mitigate this, the government currently subsidizes banks and fintech companies to cover these expenses, ensuring businesses remain profitable.
