The government is continuously taking steps to enhance the Unified Payments Interface (UPI) system. According to a report by ET, merchant charges may soon return for UPI and RuPay debit card payments.
Currently, businesses do not pay any fees when customers use UPI or RuPay debit cards.
However, before 2022, merchants were required to pay a fee known as the Merchant Discount Rate (MDR) to banks for processing transactions.
Possible Return of Charges on UPI and RuPay
If merchant fees are reinstated, it will not directly affect customers using UPI or RuPay debit cards, as these charges are not applied to end-users.
A banker informed ET that the proposal to impose MDR on UPI payments has been sent to the central government, and the matter is under consideration.
Another banker mentioned that MDR is already charged on transactions involving Visa, Mastercard, and credit cards. The industry believes that similar charges should apply to UPI and RuPay debit card transactions as well.
Understanding MDR Payments
Currently, large merchants pay MDR for credit cards and Mastercard or Visa debit card transactions. The banker questioned why the same shouldn’t apply to UPI and RuPay payments. Before 2022, merchants paid less than 1% of the transaction amount as MDR.
With UPI becoming a popular retail payment method, some believe that not all businesses should be exempt from these charges. Fintech companies argue that big businesses can handle a small fee without any issues.
Government Subsidies and Business Impact
Payment companies state that bringing back MDR is essential for sustaining businesses. New policies have increased costs, and many businesses face losses due to the absence of transaction charges on UPI payments.
This situation makes it difficult for companies to stay profitable. As a result, the government currently subsidizes banks and fintech companies to cover these costs.