Fear of Shift to Cash Due to Merchant Fee on UPI '100% Misplaced': Govt Sources, Pg16

Key Highlights:

• Government sources have dismissed concerns about a shift to cash following the introduction of a Merchant Discount Rate (MDR) on UPI transactions exceeding Rs 2,000.
• A 0.4% fee will be applied to merchants for person-to-merchant UPI transactions above Rs 2,000, effective from October 15.
• This MDR will impact only 4% of person-to-merchant UPI transactions, though these account for two-thirds of the total value.
• The National Payments Corporation of India (NPCI) introduced the MDR to generate revenue for continued investment in the UPI ecosystem.
• The government plans to engage with the Indian Banks' Association (IBA) and Confederation of All India Traders (CAIT) to monitor if merchants pass on the fee to consumers.

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Detailed Insights:

• The MDR on existing credit and debit card transactions, excluding RuPay debit cards, is significantly higher, typically ranging from 1-3%.
• All person-to-person UPI payments and transactions made via RuPay debit cards will remain exempt from any MDR.
• The GST Council is expected to consider the application of an 18% GST on the MDR for UPI payments.
• Approximately 75% of Indian merchants accepting digital payments have never processed a UPI transaction exceeding Rs 2,000, thus remaining unaffected by the new MDR.
• The primary objective of the MDR is to incentivize banks and payment companies to reinvest in and expand the UPI infrastructure.
• Government officials argue that providing UPI services indefinitely for free is unsustainable for the long-term health of the digital payment ecosystem.

Key Concepts Involved:

• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI facilitating inter-bank transactions.
• Merchant Discount Rate (MDR): A fee paid by a merchant to their bank for processing debit and credit card transactions.
• National Payments Corporation of India (NPCI): An umbrella organisation for operating retail payments and settlement systems in India.
• GST Council: A constitutional body that makes recommendations to the Union and State Governments on issues related to Goods and Services Tax.