Whether it is sitting at a small roadside tea stall or shopping at a large mall, whenever it is time to pay, most of us simply take out our phones and make a UPI payment. It has become quick, convenient, and almost effortless. But ever since a bill proposing changes to the rules governing Merchant Discount Rate (MDR) was introduced in Parliament, a question has started making the rounds, Will people now have to pay a charge for making UPI or other online payments?
What Exactly Is MDR and Why Is It Being Discussed?
To understand the issue, imagine buying goods worth ₹1,000 from a shopkeeper. Normally, you would simply pay ₹1,000 directly to the shopkeeper. But when you make a digital payment, several systems and institutions become involved. Your bank processes the payment, the merchant’s bank receives it, and in between there may be payment platforms or card networks such as Google Pay, PhonePe, debit cards, or credit cards.
All of these systems require infrastructure. There are servers, security systems, payment networks, technology, and employees working behind the scenes. None of this operates completely free of cost. For UPI transactions, users generally do not pay a direct transaction fee. The payment ecosystem has instead been supported through government incentives and subsidies. This has led to concerns about the financial burden on the government as well as complaints from payment companies and other stakeholders that they are unable to generate sufficient revenue from certain transactions.
This is where MDR, or Merchant Discount Rate, comes into the picture.
MDR is essentially a fee associated with processing certain digital payments made to merchants. For example, if a merchant receives ₹1,000 through a payment method that carries a 1% MDR, ₹10 may be deducted as the processing charge, leaving the merchant with ₹990. The amount collected through MDR is distributed among different participants in the payment ecosystem, including banks and payment networks.https://www.ndtv.com/india-news/lok-sabha-passes-bill-to-allow-charges-on-upi-other-digital-payments-11874925
What Are the Current Rules for UPI and Debit Cards?
Under the existing framework, UPI transactions and RuPay debit card transactions have been protected from MDR through provisions introduced in 2020, including Section 10A and Section 269SU. This means merchants generally do not have to pay MDR on eligible UPI transactions or RuPay debit card transactions.
However, MDR can apply to credit card transactions and certain other debit card transactions, with rates depending on the payment method and circumstances. The proposed changes have therefore attracted attention because they seek to remove the provisions that currently restrict the imposition of MDR on UPI and RuPay debit card transactions.
If those restrictions are removed, it could potentially give the government greater flexibility to introduce or permit charges on certain digital transactions in the future.https://unbiasedpollkhol.com/
Will Every UPI Payment Be Charged?
The discussion around the proposed changes does not necessarily mean that every person to person UPI transfer will suddenly become chargeable. For example, if you transfer ₹1 lakh to a friend or receive ₹2 lakh from someone for a personal transaction, that is different from making a commercial payment to a merchant.
The concern is primarily around business or merchant transactions, particularly higher value purchases. Discussions around the proposed framework have focused on transactions above certain thresholds, such as ₹2,000, although the exact implementation, rate, exemptions, and applicability would depend on the final rules.
So, it would be misleading to simply say: “UPI will now charge everyone for every transaction.”
But If the Merchant Pays, Why Should Consumers Worry?
At first glance, this may seem simple.
Suppose you purchase goods worth ₹1 lakh and an MDR of 0.25% is imposed. The merchant would have to bear ₹250 as the payment processing cost.
You might think: “That’s the shopkeeper’s problem. I am still paying ₹1 lakh.”
But economics does not always work that way.
Businesses generally consider their costs while setting prices. If a new cost is imposed on merchants, they may eventually pass some or all of that cost on to consumers by increasing the prices of their goods or services. This is the same basic principle that applies to many business costs and taxes. A company may technically pay a tax or fee, but the cost can ultimately be reflected in the price paid by customers. So, if a merchant has to pay additional charges for digital transactions, consumers could eventually feel the impact through higher prices.
It May Not Affect Only Shopping Malls
Another important point is that this issue is not limited to large shopping malls or major retailers. Consider a vegetable seller. You may purchase vegetables worth ₹100, ₹200, or ₹300 from the seller, meaning your individual transaction may fall below any proposed threshold.
But that same vegetable seller purchases stock from a wholesaler. If the wholesale transaction exceeds the applicable threshold and attracts a digital payment charge, the wholesaler may pass the additional cost to the seller. The seller, in turn, may eventually incorporate that cost into the price charged to consumers.
In this way, even a charge introduced somewhere higher in the supply chain can potentially travel down to the final customer.