The government is nudging banks and the Confederation of All India Traders (CAIT) to ensure UPI’s Merchant Discount Rate (MDR) is not passed on to consumers, sources said, adding that it can’t stop people from splitting transactions to avoid the charges also.
“Banks have been advised to ensure that merchants do not pass it on to customers,” a senior official said.
Banks to launch UPI awareness campaign
The government will also reach out to the Indian Bank Association (IBA) to see if a mechanism can be put in place to ensure that MDR on UPI is not passed on to consumers. Banks are also expected to start an explanatory campaign in every regional language for consumer awareness.
Under the new framework to come into force from October 15, UPI transactions between individuals will remain completely free, while merchant payments of up to Rs 2,000 will also continue to attract zero MDR. A 0.4% MDR will apply to specified person-to-merchant transactions above Rs 2,000, with certain categories, such as capital market transactions and essential services, receiving lower or fixed rates. The government has said about 96% of P2M transactions will remain unaffected.
Justifying the minimal charges for meeting UPI ecosystem costs, sources said fear of people moving to cash is 100% misplaced.
“Merchants have always absorbed the MDR on credit cards. But people are still getting Visa, Mastercard, and Amex cards. Why is it that suddenly UPI, an indigenous product that has done so well, is something that merchants can’t pay for when they are paying for all other methods?” the official asked.
GST Council may review MDR tax
The merchant fee on debit and credit cards is significantly higher and is broadly in the range of 1-3%.
On the issue of a Goods and Services Tax (GST) of 18% applying to the MDR on eligible person-to-merchant UPI payments, the official said it was hoped that the GST Council would take a favourable view and be reasonable. The GST Council is scheduled to meet on October 7.
With the MDR collections not expected to cover the full cost of running UPI, the government is likely to continue its subsidy scheme for UPI payments of under Rs 2,000 to merchants with an annual turnover of less than Rs 50 crore.