Suppliers charging vendors extra for UPI payments before MDR: ISB survey

An ISB survey finds that 10.4 per cent of vendors face additional charges from suppliers for UPI payments, even as the proposed MDR levy remains deferred until after Diwali

About one in 10 vendors say their suppliers have already started charging extra for payments made through the Unified Payments Interface (UPI), even though no merchant discount rate (MDR) has yet been levied on such transactions, according to a survey by the Indian School of Business (ISB).

 

The survey, by ISB’s Centre for Analytical Finance, covered 722 vendors across 64 cities and towns in 14 states and Union Territories between September 24 and October 10. Of these, 10.4 per cent said their suppliers had asked for additional charges on UPI payments in the preceding 10 days.

 

Seven in 10 vendors pay suppliers more than ₹2,000 at a time for stock, which is the range the MDR framework covers.

 

 

“They (vendors) do not really attribute this to the MDR, but whenever the vendors wanted to pay using UPI, they were asked to pay some additional charge. They were clearly indicating that UPI will have an additional charge whereas when they would want to pay through cash, this charge would not be there,” said Mohan Ramanath, co-author of the report, at a virtual press briefing.

 

An MDR is the fee a merchant pays its bank for accepting digital payments. India has more than 60 million merchants who accept UPI.

 

The National Payments Corporation of India (NPCI), the organisation that operates the UPI network, has deferred the levy of MDR on select UPI transactions until after Diwali. It is yet to issue a new date for implementation.

 

The deferment offers merchants a breather during the ongoing festival season. The levy was originally scheduled to take effect on October 15.

 

According to the MDR structure, a 0.4 per cent fee will be applicable on select person-to-merchant (P2M) UPI transactions above ₹2,000. It is capped at ₹300.

 

Categories such as railways, fuel, education and others attract a flat fee of ₹5 on transactions above ₹2,000.

 

An MDR cannot be passed on to customers. Small vendors, categorised as P2PM (peer-to-peer-merchant), are exempted from UPI MDR. These are merchants who receive less than ₹1 lakh per month through UPI QR directly into their accounts.

 

The ISB report added that one in five vendors could pass on MDR costs to customers.

 

Of the surveyed vendors, 67 per cent accept UPI, and nearly half of the participants had ‘heard of a charge’. Of UPI-accepting vendors, 25.3 per cent had at least one payment above ₹2,000 recently. On average, 7 per cent of a vendor's daily UPI transactions are above ₹2,000.