UPI Fee: Who Will Pay How Much And What's Exempt, Pg4

Key Highlights:

• A Merchant Discount Rate (MDR) regime for UPI transactions was announced, effective October 15.
• This MDR will be levied on payments to merchants exceeding Rs 2,000 at a uniform rate of 0.4%.
• The charge is borne by merchants, not customers, and does not apply to person-to-person payments.
• Payments for essential services, mutual funds, and recurring bills have specific, lower MDR rates or are exempt.
• The National Payments Corporation of India (NPCI) stated the MDR aims to cover the high costs of maintaining UPI infrastructure.

Detailed Insights:

• Payments between individuals (P2P) remain completely free of any MDR charges.
• Person-to-merchant (P2M) transactions up to Rs 2,000 will also continue to be free.
• For UPI payments exceeding Rs 75,000 to merchants, the MDR is capped at Rs 300 per transaction.
• Essential services like railways, telecommunications, and utility bill payments will attract a flat MDR of Rs 5 per transaction.
• Payments related to mutual funds, securities, and stockbrokers will have an MDR of 0.02%, capped at Rs 300.
• Automated recurring payments via UPI mandates or autopay, such as monthly utility bills and OTT subscriptions, are exempt from MDR.
• The Finance Ministry has advised banks to ensure merchants do not pass on the MDR cost to consumers.
• Small merchants receiving up to Rs 1 lakh per month through UPI QR codes into personal bank accounts are exempt from MDR.
• Merchants with consistent high UPI inflows (over Rs 1 lakh/month for three consecutive months) are reclassified to the regular merchant category.
• The MDR is intended to fund the maintenance and investment in India's digital payments infrastructure, which costs approximately Rs 20,000 crore annually.

Key Concepts Involved:

• Merchant Discount Rate (MDR): A fee paid by a merchant to the bank for processing digital transactions.
• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI facilitating inter-bank peer-to-peer and person-to-merchant transactions.
• National Payments Corporation of India (NPCI): An umbrella organization for operating retail payments and settlement systems in India.