Be it a tea shop or a shopping mall, buy vegetables or eat Golgappa. Scanned the QR code and payment was made. But from October 15, there is going to be a big change in this story of UPI. In particular, 0.4 percent Merchant Discount Rate (MDR) will be applicable on payments made to some Person-to-Merchant i.e. shopkeeper or businessman of more than Rs 2000. MDR means a kind of charge.
However, this does not mean that the customer will be out of pocket on this UPI payment. For example, if you buy goods worth Rs 5,000 at a shop and pay through UPI, then an MDR of 0.4 percent i.e. Rs 20 will be levied on that transaction. But this amount will not be recovered from the customer, rather the merchant will have to pay it. Even on normal merchant transactions of Rs 75,000 or more, MDR will be limited to a maximum of Rs 300. That means the merchant will have to pay a maximum of Rs 300 per transaction. Whereas Person-to-Person UPI payment made from one person to another will be free.
As a consumer, many questions might be coming to your mind now.
1.What is Merchant Discount Rate i.e. MDR?
2.What is person to person payment?
3.What is Person to Merchant Payment?
4. Who will have to pay the 0.4% charge?
We will explain this decision of the Government of India one by one to you in easy language.
First of all understand what decision has the government taken?
0.4 percent charge on person to merchant transactions above Rs.2000
Charges will be levied on Person to Merchant (P2M) payments from October 15. This charge is called MDR Merchant Discount Rate. Transactions above Rs 2,000 (P2M) will attract 0.4% merchant discount rate (MDR).
But wait… if you are a customer i.e. a consumer then you will not have to pay anything. This 0.4 percent will have to be paid by the shopkeeper/trader/company.
The government has fixed this charge. Even if you pay Rs 75 thousand to a merchant, or even more, the shopkeeper/merchant/company will not have to pay more than Rs 300.
P2P Transfers Completely Free: There are no fees for person-to-person (P2P) transfers, regardless of the amount.
small value transactions free
No charges on transactions up to Rs 2,000. (This is more than 95% of the total P2M volume.)
Flat fee for required areas
Flat ₹5 charge on transactions above ₹2,000 in sectors like railways, telecom, insurance, fuel and agri inputs
Government utility and education fees
Flat ₹5 charge on electricity, water, piped gas bills and school/university fees etc. above ₹2,000
Lower charges on investment transactions
0.02% charge on payments through mutual funds, securities, stockbrokers etc., which will be a maximum of Rs 300.
Keep in mind that the customer will not have to pay these charges. This payment will have to be made by the merchant. But will merchants be willing to take a cut of their profits?
Why is the government taking money in the name of merchant discount rate? What is MDR?
MDR (Merchant Discount Rate) is the fee that is charged for processing payments from the merchant or business accepting digital payments.
UPI processes billions of transactions every month. MDR money will be invested only in the UPI ecosystem. So that more investment can be made in strengthening the infrastructure, innovation, cyber security, security of UPI infrastructure and customer service. UPI is India’s own payment system. The government says that its charges (MDR) are much less compared to other payment methods like credit cards, debit cards, wallets.
What is Person to Person (P2P) Payment?
When one person sends money to another person for personal needs, it is considered P2P.
For example, you gave Rs 4000 to your friend, Rs 10000 to your relative. There is an individual receiving the money and the payment is not for a normal business purchase/service.
What is Person to Merchant (P2M) payment?
When a person makes payment in exchange for a good or service, it is P2M. For example, you pay Rs 3000 to Amazon for goods. Pay for dinner at restaurants.
Here the receiver is the merchant i.e. a person/organization who is selling goods or services commercially. Merchant does not necessarily mean that there is a company in front. A small shopkeeper or individual businessman can also be a merchant.
Who can be a merchant?
grocery shopkeeper
Restaurant/Cafe
petrol pump
medical store
Online shopping website
Taxi/Cab Service
Trader providing services like electricity/mobile bill
Freelancer or small business, if accepting merchant payments.
Special care for small traders
Small merchants receiving payments up to Rs 1 lakh per month will benefit from mandatory zero MDR on all transactions. Meaning that they will not have to pay any money to the government.
How to know the difference between P2P and P2M?
NPCI i.e. UPI system and banks do this work automatically. The system mainly looks at the type of account of the receiver. If the money is going to the personal UPI ID or bank account of a common person, like a friend, family or relative, then it is considered P2P.
But if the money is going to the registered account or merchant QR code of a businessman or merchant, then it is considered as P2M. Big or general traders register themselves as merchants with the bank, due to which their UPI ID or QR code gets tagged as a merchant in the system. So when you scan their QR or enter their merchant UPI ID, the system immediately understands that it is P2M.
There is a slightly different provision for small shopkeepers. Small roadside vendors or grocery shopkeepers often put QR on their personal accounts. These are initially kept in the P2PM i.e. Person-to-Person Merchant category, due to which no charges are levied on them. Banks check every month how much money is coming into their account through UPI.
If more than Rs 1 lakh is coming in for three consecutive months, then banks shift them to the normal P2M category. Overall, the system decides whether the transaction is P2P or P2M by looking at the nature of the receiver’s account or QR code and its registration status with the bank. The customer does not need to do anything, everything is done automatically in the backend.
Can big traders pass the burden of MDR on buyers?
No, merchants cannot pass on MDR charges to customers while taking payments through UPI. This system ensures that customers only pay the quoted price.
Will general consumers be charged for making payments through UPI?
No, UPI services will continue without any charges for consumers. Consumers can. Continue to make free transactions using UPI as they have been doing till now. Consumers paying through UPI will not be charged any fee. Personal account holders can continue to use the UPI application for all regular, daily expenses without any worries.
Will UPI apps charge platform fees on UPI payments?
No, UPI app providers will not charge platform fees or any other charges for any payment made through UPI. UPI Applications are expressly prohibited from charging platform fees on UPI transactions.
Is there any monthly volume limit on free UPI transactions for consumers?
No, there is no monthly quota, volume limit or tiered limit on free UPI transactions for individual customers. Users can make as many valid person-to-person (P2P) or person-to-merchant (P2M) payments as they want in a month. No fee is charged for this. Although individual banks and NPCI impose standard daily security limits on the total transaction amount (typically ₹1 lakh to ₹5 lakh depending on the transaction category), these are risk-management rules, not commercial charge levels. In any case, no matter how many times a customer uses UPI, he does not have to pay any transaction fee.
Do small merchants need to upgrade or replace their existing QR codes?
No. The existing QR infrastructure will continue to function normally. Merchants do not need to replace, re-register, or make any changes to their existing physical QR stand or soundbox. All UPI QR codes currently installed at shops will continue to process payments without any interruption. Merchants can take payments from customers through their existing setup without visiting the bank branch or updating the software.
Will traders be willing to cut profits?
Merchants are going to be charged in UPI’s new MDR system, so the biggest question is whether merchants will bear this additional cost from their profits or pass it on to the customer? For example, Rs 5 MDR on a payment of Rs 4,000 may not seem like a huge expense, but for a business with crores of transactions, this amount can be huge.
Even for small shopkeepers, the fee charged on each transaction can gradually increase costs. In such a situation, it is possible that some businessmen adjust this cost in their margin, while some try to include it in the price of goods or services.
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