UPI MDR: Is Hyderabad’s ‘less-cash’ economy at risk?

Hyderabad: Hyderabad’s ‘less-cash’ economy is likely to face a dent due to the proposed Merchant Discount Rate (MDR) on Unified Payments Interface (UPI).

Although the central government has deferred the decision to impose MDR on UPI transactions for merchants, traders in the city are exploring alternatives to it.

Hyderabad roadside traders prefer cash

Speaking to Siasat.com, several roadside traders in Hyderabad said that if any charges are imposed on them for UPI payments, they will start shifting towards cash.

Raju, a roadside trader who usually sells oranges in front of the Telangana High Court, said that if MDR is imposed on transactions, he will start demanding cash from customers.

Although the government has made a provision to safeguard small merchants by placing those receiving up to Rs 1 lakh per month under the P2PM category, traders remain concerned about MDR. Under this category, no MDR is collected, irrespective of the amount per transaction.

Another fruit seller, Saif, said that for transactions above Rs 2,000, he will prefer cash after the implementation of MDR.

Different view of startups

Startups in the Hyderabad economy have a different view on the proposed MDR on UPI payments.

The owner of Heaven’s Cafe, located at Santosh Nagar, opposite Prime Diagnostics, Asif, stated that he will accept UPI payments irrespective of MDR.

Although cash will be preferred, customers will have the option to make payments through all modes of payment.

A construction startup, Mannat Construction, based in Golconda, has a different solution. Its owner, Arshad Mohiuddin, said customers making payments above Rs 2,000 would be asked to pay either in cash or by cheque.

PoppinsHub, a manufacturer of big badges, Pokemon stickers, mini planners and bookmarks, said it would not change its payment options due to MDR.

Irshad Ahmed Khan of Poppins Hub, which operates from Budvel, also echoed a similar opinion that irrespective of the MDR, traders would have to accept all modes of payment.

Why has MDR been proposed?

Earlier, the Finance Ministry clarified that MDR is neither a tax nor a charge collected by the government or the National Payments Corporation of India (NPCI). It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.

Though it is not a charge on customers making UPI payments, there are concerns that merchants in the Hyderabad economy may pass MDR charges on to customers.

MDR on UPI payments

Once implemented, it is going to be 0.4 per cent of the transaction amount that merchants need to pay to banks.

However, it will be charged only on transactions valued at over Rs 2,000. Moreover, the maximum MDR per transaction can be Rs 300.

Though MDR charges will be levied on person-to-merchant (P2M) transactions, there will be no fee for person-to-person (P2P) transactions.

Revenue generated from MDR will support banks, payment service providers and UPI application providers in expanding and improving payment infrastructure, including in rural and semi-urban areas.

UPI MDR on Capital market transactions

For money transferred to investment platforms to invest in mutual funds or the stock market, the MDR charges will be 0.02 per cent. It is also capped at Rs 300 per transaction.

Thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs 5 per transaction.

Will MDR impact the ‘less-cash’ economy in Hyderabad?

Although MDR alone is unlikely to majorly impact the ‘less-cash’ economy in the city, there are apprehensions that P2M transactions valued at over Rs 2,000 may decline as customers may be forced to either make large payments in cash or split the payments into multiple transactions valued at up to Rs 2,000.

Moreover, as there are concerns about an increase in cash usage, it may put a burden on bank ATMs.

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