New Delhi: Shopping via UPI will soon cost a bit more, but not for shoppers, only for shopkeepers, from October 15th onwards, for larger transactions.
The NPCI, the entity responsible for the operation of UPI, said on September 15 that it will restrict UPI transactions with shops and businesses to a maximum of ₹2,000 and charge a 0.4% excess amount on transactions exceeding this cap. This fee is known as the Merchant Discount Rate (MDR).
In simple words: If you pay ₹5000 to a big shop using UPI, the shop will now pay ₹20 to the banks and apps that acted as payment agents for the same. Even if it’s a huge amount, the merchant will not get charged more than ₹300 as this is the maximum fee limit.
The positive side for those who are not the elite is that nothing is changing for them. Transferring funds to friends or family members will remain absolutely free. In addition, offering ₹2,000 or less to any small shopkeeper or street vendor or anyone else is also free. Even if the total payment in a month is less than Rs. 100,000 for small businesses who earn up to Rs 100,000 per month using UPI will not attract any tax.
Why introduce this fee?
From its inception UPI has been free and is run with government funding via subsidy. The number of payments processed by UPI has reached the scale of billions per month and it requires massive computing power, secure servers and continuous updates.
The amount will not be a tax and will not be spent on the government by NPCI, the fee, it says. It will be distributed to the banks, payment apps, and other players enabling UPI. The money will be used for things such as fraud protection and faster servers, but will not be put into profit for private companies, industry leaders say.
Some merchant groups are concerned that store owners will be able to “pass through” the increased costs to customers through price increases without them knowing. It’s a new modification for a payment system that has gained popularity in India in part because of being totally free to use.
Until now, all of the everyday UPI users can continue to send and receive money as they had been. The change will be felt by the shopkeepers who are making larger sales, in mid-October.
