The use of online payments is increasing rapidly in the country. Today, financial transactions worth crores of rupees, starting from mobile recharge, are being done through UPI. Soon, a situation will arise where even our page will not move without online payments.
Currently, no fee (MDR) is charged on these transactions. However, the government is preparing to impose a fee on online payments soon. MDR, i.e., merchant discount rate, is a type of fee that shopkeepers pay to their banks for processing digital payments. Although the government has currently waived this fee, now the government is planning to re-impose it.
Who will be charged for online payments?
According to a news report published in ET, a proposal has been sent to the government by the banking industry. The proposal states that MDR (Merchant Discount Rate) should be imposed on shopkeepers whose annual turnover is more than Rs 40 lakh. The government is considering this proposal. That is, no MDR will be charged on small shopkeepers whose annual sales are less than Rs 40 lakh.
Different rates for small and large merchants
According to this proposal, the government can implement a system like GST slabs. That is, large merchants will be charged more, and small merchants will pay less or no fee. This will not affect small merchants in any way. However, large merchants who make digital payments worth lakhs of crores every month will have to pay the fee.
Why is there a need to bring back MDR?
Banks and payment companies say that when large merchants are already charging MDR on Visa, MasterCard, and credit cards, why not on UPI and RuPay? According to banks, when the government abolished MDR in the 2022 Budget, the aim of taking this step was to encourage digital payments. But now UPI has become the most widely used payment option. Therefore, instead of bearing the cost of this facility, the government can collect a fee from large merchants.
Why is a fee required for payment companies?
Payment companies regulated by the government under the Payment Aggregator Rules say that the cost they incur to comply with the rules has increased significantly. If MDR is not reinstated, their business will not be able to survive. They will have to invest heavily in payment processing, cyber security, technology upgrades, and customer service. It is not possible to bear all these costs without any charges.
What is MDR?
MDR stands for Merchant Discount Rate. MDR is the fee that the shopkeeper pays to their bank for processing digital payments. When a customer makes a payment through UPI or debit card, banks and payment companies have to bear the infrastructure costs. This fee is levied to cover these costs.