Govt, IBA to work on mechanism to ensure UPI MDR isn't passed on to consumers

The government is likely to discuss with the Indian Banks’ Association (IBA) the possibility of putting in place a mechanism to ensure that merchants do not pass on the cost of UPI Merchant Discount Rate (MDR) to consumers, government sources told Business Today.

The discussions are aimed at ensuring that consumers do not end up bearing any additional cost following the introduction of MDR on specified UPI transactions, the sources said.

The IBA is also expected to undertake multiple awareness campaigns among merchants and consumers to explain the MDR framework and ensure that there is a mechanism to prevent the charge from being passed on to customers.

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The government, however, is not currently reconsidering the MDR framework, the sources said. There is also no proposal under consideration with the Ministry of Finance to exempt UPI transactions from MDR for any essential sector, including fuel.

The development comes amid concerns raised by traders and petrol pump dealers over the impact of MDR on their businesses. The Finance Ministry is expected to hold discussions with traders, particularly the Confederation of All India Traders (CAIT), to brief them on the framework and reiterate that merchants should not pass the cost on to consumers, the sources said.

Petrol pump dealers have separately raised concerns over the impact of MDR on their thin margins with the Ministry of Petroleum and Natural Gas. These concerns will be addressed by the petroleum ministry, the sources said.

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The new MDR framework provides for a 0.4% charge on specified person-to-merchant UPI transactions above Rs 2,000, while certain essential and thin-margin sectors, including fuel, have been provided a flat Rs 5 MDR above the threshold. The framework is scheduled to come into effect from October 15.

The government’s position is that the MDR is a charge within the merchant-payment ecosystem and should not become an additional cost for consumers.

The proposed discussions with IBA are aimed at creating a mechanism to ensure that this principle is followed on the ground.