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Government Moves to Shield Consumers From New UPI Merchant Fee

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The finance ministry is in talks with payment platforms to stop merchants passing the 0.4% UPI merchant fee to consumers, with daily monitoring from October 15.

The government is holding talks with payment aggregators and platforms that onboard merchants to make sure a new merchant discount rate (MDR) is not passed on to consumers, finance ministry officials told reporters on Thursday in New Delhi.

The Centre has decided to charge a 0.4% merchant fee on transactions above Rs 2,000. Officials said they do not expect the move to cause a decline in UPI transactions or a return to cash. On Tuesday, the ministry said banks had been advised to ensure merchants do not pass the MDR to customers.

"From Oct 15, we will monitor on a daily basis whether merchants are passing the MDR to consumers," the officials said. They did not detail the specific steps that would be taken to keep consumers from bearing the charge.

Officials also said merchants would face no additional GST burden once the MDR takes effect, because the tax would be offset through input tax credit. The matter may be taken up at next month's GST Council meeting.

Response to US pressure claims

The department of financial services used social media to counter charges from the Congress that the MDR had been introduced under US pressure to benefit large platforms. It said the measure was meant to enable more domestic players to operate.

The government pointed to its policy of allowing only RuPay credit cards on UPI, intended to make the card the preferred choice for Indian users. "Any foreign company operating in India would like their product to be as competitive as local ones. But if govt has kept RuPay debit cards free of MDR, how can anyone think we are acting under foreign pressure? Introducing MDR enables new players to enter and lets existing small players compete," an official said.

Officials argued that fully subsidising the fast-payment system would not guarantee innovation. "As a sovereign nation, if we want to have our own institutions, some transactions have to bear the cost," the official said.

Fund for small merchants

The government said a dedicated fund will be set up, drawing 5% of MDR collections. The money will go toward promoting and accelerating UPI use by small merchants and encouraging its sustained use.

UPI merchant fee, MDR, finance ministry, RuPay credit cards, digital payments India, GST Council, payment aggregators, 0.4% merchant fee

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