'Retailers likely to pass UPI MDR to consumers'

Kolkata: Leading retail industry bodies fear India’s small retailers are likely to pass on the proposed 0.4% merchant discount rate (MDR) on UPI transactions above Rs 2,000 to consumers as an additional charge the way they do for credit card transactions or push consumers for cash transactions.

Retailer associations including the Retailers Association of India (RAI), All India Mobile Retailers Association (AIMRA), and the All India Consumer Products Distributors Federation (AICPDF) said retailers, operating on wafer-thin net margins of 0.75-2.5% have little room to absorb the additional cost.

The impact will be particularly acute in garments, footwear, mobile phones, medicines and fast-moving consumer goods (FMCG), where bill values frequently exceed Rs 2,000, they said.


“Micro, small and medium retailers who are already struggling with low margins and high operational costs will have no choice but to pass on the MDR to consumers in whatever form possible,” said RAI chief executive Kumar Rajagopalan.

“We have often seen small retailers ask for extra payment during credit card transactions. The same may now happen in UPI transactions of over Rs 2,000. Despite the 18-20% gross margin, the net margin for retailers is 2-2.25% and if the owner’s salary is accounted for in that, most of them would run at a loss,” he said.

Any direct pass-on, however, would violate the government’s advisory mandating merchants to absorb the 0.4% UPI MDR. Retailers who levy a surcharge on customers for card payments may also be acting contrary to applicable norms.

The Centre has decided to introduce a 0.4% MDR on person-to-merchant (P2M) UPI transactions above Rs 2,000 from October 15, capped at Rs 300 for payments of Rs 75,000 and above.

FMCG trade body AICPDF president Dhairyashil H Patil said retailers would be reluctant to accept UPI payments above Rs 2,000 unless customers bear the additional cost.

“It’s a difficult situation as there is a huge cost associated with handling cash as well. Even breaking the payments into multiple transactions to avoid MDR, using multiple QR codes or paying to the proprietor’s personal UPI account is not advisable as those can be tracked and create compliance issues for retailers. The MDR defeats the customer-centricity of UPI transactions,” Patil said.

AIMRA founder chairman Kailash Lakhyani said mobile retailers operate on net margins of just 0.75-1.5%. He said general trade retailers will either pass this cost on to consumers in one way or another, push for cash payments instead of UPI, or cut back on the freebies and discounts offered to customers.

Retailer bodies said they would have preferred a nominal fixed charge on UPI transactions above Rs 2,000, like the fixed Rs 5 charge to be levied on railway, mobile bill and insurance payments. After writing to the Centre opposing the MDR, retailers are also planning a token strike on UPI transactions next month.

As per government diktat, Zero MDR will continue for transactions up to Rs 2,000, which account for more than 95% of P2M volumes, as well as for small merchants earning up to Rs 1 lakh a month through UPI QR codes directly into their bank accounts. Merchants crossing the Rs 1 lakh threshold will pay the MDR. The government has said the proposed rate is significantly lower than standard MDRs on debit and credit cards.