New UPI category waives MDR for small merchants

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Published: June 27, 2019 1:20:56 AM

Merchants with expected inward UPI transactions worth up to Rs 50,000 per month will be eligible for acquisition under the P2PM category.

upi, retail sector, retail industry, economyThe P2PM category of payments will cater to small merchants and the unorganised retail sector.

The National Payments Corporation of India (NPCI) has created a new category of Unified Payments Interface (UPI) transactions to enable small offline merchants to accept such payments without having to pay merchant discount rate (MDR).

The P2PM category of payments will cater to small merchants and the unorganised retail sector. Merchants with expected inward UPI transactions worth up to Rs 50,000 per month will be eligible for acquisition under the P2PM category. The acquiring bank or fintech will not be allowed to charge MDR from merchants acquired as P2PM vendors.

Once the merchant is acquired, they will be allowed a cooling period of three months. If such a merchant clocks inward UPI payments of Rs 50,000 per month for three consecutive months, they will have to be formally acquired under the P2M category. This means that they will have to begin paying MDR.

FE had first reported on January 16 that banks had suggested to the government that smaller vendors be on-boarded as peers, thereby sparing them the MDR. MDR is the fee charged by banks and fintechs for offering payment-acceptance infrastructure. The MDR for merchant UPI transactions stands at 0.25% for transactions under `1,000 and 0.65% for all other transactions.

In a circular dated June 17, NPCI said that UPI has emerged as a popular method offering peer-to-peer (P2P) and merchant payment (P2M) services and it possesses flexibilities to deepen and emerge as a popular and preferred payment mode among the masses.

“In order to achieve this vision, the UPI stakeholders have jointly agreed to devise an approach to bring small merchants or vendors with low value ticket size into the digital framework,” NPCI said in the circular, adding, “Towards this cause, UPI is introducing a new category ‘P2PM’ catering to small merchants and unorganised retail sector. This category shall be in the addition to the other two existing categories P2P and P2M respectively.”

The pricing and other applicable charges for transactions acquired under this category shall be the same as that of P2P. While all the transactions under the P2PM category shall be settled as P2P, they will be categorised as merchant transactions, the NPCI said.

While UPI transactions have grown manifold since the launch of the payment mode in 2016, P2P transactions account for an overwhelmingly large share of the pie. In May 2019, a total of 733.54 million transactions worth Rs 1.52 lakh crore were made using the UPI channel. However, of these, less than 20% are merchant payments, industry players say.

Most merchant UPI transactions are made on e-commerce platforms, with small store fronts remaining out of reach for banks.

Banks say that it is not only expensive for them to tap the very small merchants, but it is also unremunerative in the absence of consumers who are savvy enough to make QR-based payments using their smartphones.
In December 2017, the government had agreed to pick up the tab for the MDR payable on all debit card, UPI and Aadhaar-enabled Payment System (AePS) transactions up to Rs 2,000 for a period of two years with effect from January 1, 2018. It was estimated that the MDR to be reimbursed to the banks in respect of transactions less than `2,000 in value would be `1,050 crore in fiscal year 2018-19 and Rs 1,462 crore in FY 2019-20.

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