Retailers push back against proposed 0.4% MDR on UPI transactions above Rs 2,000, warn of hit to thin margins

Kolkata: Retailers across the country are mounting a strong pushback against the proposed merchant discount rate (MDR) on unified payments interface (UPI) transactions above ₹2,000, with industry associations representing consumer electronics, mobile phones and FMCG retailers petitioning the finance ministry to scrap the charge, saying it will erode their already thin net margins.

In a letter to the finance ministry Wednesday, the All India Mobile Retailers Association (AIMRA), representing 150,000 neighbourhood stores, highlighted that the sector is facing a severe crisis, with a nearly 40% year-on-year drop in business volumes as companies raised handset prices to offset higher memory chip costs.

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"Mainline mobile retailers operate on extremely thin net margins (often between 0.75% and 1.50%)," AIMRA said in the letter. "If an MDR charge of 0.40% is imposed on UPI transactions-which account for a significant portion of digital payments-it will directly erode their survival margins."

The resistance follows the Centre's decision to introduce a 0.4% MDR on person-to-merchant (P2M) UPI transactions above ₹2,000, capped at ₹300 for payments of ₹75,000 and above, from October 15.

Merchants will bear the charge, while zero MDR will continue for transactions up to ₹2,000-which account for more than 95% of P2M volumes-and for small merchants earning up to ₹1 lakh a month through UPI QR codes directly into their bank accounts. Those crossing the ₹1 lakh threshold will pay the MDR.

While the Centre stressed that the 0.4% MDR is significantly lower than the standard MDR on debit and credit cards, industry bodies said the charge would disproportionately hurt higher-value offline retailers, which operate with high overheads and low margins.

The South Indian Organised Retailers Association (ORA), which represents over 5,500 large electronics and mobile phone retail stores under chains such as Poorvika, Sangeetha and Big C, estimates that 20% of its annual sales revenues of ₹26,400 crore comes through UPI.

In a letter to the finance ministry, ORA said the low net margins and high overheads of physical retailers mean "absorbing additional transaction charges severely impacts the viability of physical retail stores."

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The All India Consumer Products Distributors Federation, the FMCG general trade industry body, plans to write to the government on Friday, while the Retailers Association of India is consulting the government and is also expected to make a representation. Dhairyashil H Patil, president of the FMCG trade body, said FMCG retailers typically operate with gross margins of 8-12%, leaving kiranas with net margins of only 1.5-2% due to high operational cost and other expenses like stock expiry.

"The 0.4% MDR will be a direct hit on their net margins," said Patil. "Even the MDR above ₹1 lakh threshold is a concern because the net margin a kirana makes from FMCG can be lower than minimum wages in several states, yet they will now have to bear an additional fee."

Around 97-98% of transactions at mobile phone and retail stores are currently above ₹2,000. In FMCG, UPI accounts for around 35-40% of transactions, although payments above ₹2,000 are largely limited to monthly shopping in tier-1 and 2 towns.