VISAKHAPATNAM: The proposed Merchant Discount Rate (MDR) framework for certain UPI merchant transactions could indirectly affect consumers through changes in prices, even if customers are not charged a separate fee at the time of payment, economist Dr Chetti Praveen Kumar from Andhra University, explained.
Under the framework proposed to take effect from October 15, person-to-person UPI transactions will remain free, while specified person-to-merchant transactions above Rs 2,000 will attract MDR. Certain small merchants and low-value transactions will also be protected.
Dr Praveen noted that the merchant would be the immediate payer of MDR, but the final economic burden could be shared differently depending on competition, profit margins and the merchant’s ability to adjust prices.
“For a Rs 10,000 eligible transaction, an MDR of 0.4 per cent would amount to Rs 40. With 18 per cent GST on the MDR, the immediate cost would be Rs 47.20, before considering eligible input-tax credit,” he explained.
A merchant could absorb the cost through a lower margin or adjust prices and discounts, he stated. In competitive markets, passing the entire cost to customers may be difficult, while businesses with greater pricing flexibility could reflect part of the cost in their prices.
Dr. Kumar added that the impact could be more significant for small traders operating on narrow margins.
Since UPI is widely used by neighbourhood shops, street vendors and small businesses, he noted that payment costs should not discourage merchants from accepting digital payments.
He further explained that GST treatment could alter the effective burden, as businesses eligible to claim input-tax credit may face a different cost from those unable to fully utilise it.
At the same time, he stated that the cost of maintaining UPI infrastructure, including cybersecurity, fraud prevention, authentication and network reliability, also needs to be considered.
The economist pointed out that stockbrokers have raised operational concerns over MDR on specified capital-market transactions, particularly client fund transfers.