Unified Payments Interface (UPI), one of the world’s largest real-time payment systems, is expected to become costlier as the government may authorise merchants to charge a Merchant Discount Rate (MDR), or fee, of 0.25 per cent to 0.40 per cent on UPI payments exceeding Rs 2,000. However, payments made from one person’s regular UPI account to another’s will not incur any charges.
Finance Minister introduced the Taxation and Other Laws (Amendment) Bill
Union Finance Minister Nirmala Sitharaman introduced the Taxation and Other Laws (Amendment) Bill in Parliament on Tuesday. The bill seeks to remove restrictions on banks and payment service providers from charging MDR on notified electronic payment modes. Government officials said no decision has yet been made on when this proposal will be implemented.
Who will be impacted?
Merchant Discount Rate (MDR) is for merchants. That is, after the rule is implemented, if a fee is levied on transactions exceeding Rs 2,000, merchants will have to pay it. This fee will not be charged from the general customers. According to government estimates, the Rs 2,000 limit covers 5 per cent of all UPI transactions. But these transactions account for 65 per cent of the total transaction value. This is unlikely to have any impact on the purchase of items like milk, vegetables and groceries or on payments made for using auto-taxis. In July, there were approximately 23.7 billion UPI transactions, with a total value of Rs 29.9 lakh crore.
Merchant discount rate will not be applicable on 95 per cent of transactions
“Even if implemented, 95 per cent of transactions will not be subject to the merchant discount rate,” an official said. “Moreover, not all businesses will pass these fees on to customers, and the amount will be lower.”
Government may fix a ceiling on the total amount to be charged
Industry insiders say the government could set a maximum limit (ceiling) on the total amount charged. An industry source said, “Unlike credit cards, UPI transactions don’t involve any funding costs, so setting a maximum limit after covering costs would be appropriate.”
MDR is charged on credit card and debit card transactions
It’s worth noting that MDR is currently charged on credit and debit cards, but most merchants don’t pass it on to customers. In the case of credit card MDR, which isn’t regulated, it can be up to 3 per cent of the transaction value. The limit is 0.40 per cent for debit card transactions up to Rs 20 lakh and 0.90 per cent for transactions above Rs 20 lakh.
Will ordinary customers have to bear the cost of fees?
Regarding the fee charged on UPI transactions, RBI Governor Sanjay Malhotra said it’s too early to say how the cost will be covered. At the press conference held after the monetary policy announcement, he said, “It’s too early to talk about this right now. The government is still working on making changes. Someone will have to bear the cost.”
When asked whether the cost would ultimately be borne by ordinary consumers, Malhotra said, “Please keep in mind that ultimately it is the consumer who bears the cost in some way or the other. It may not be the same consumer. It may impact the entire economy, and you may not see it directly.”
