Big news for UPI users. Shop owners have been hesitant to accept UPI payments due to the Merchant Discount Rate (MDR) they have to pay, but the government has stepped in to cover this cost. On Wednesday, the Union Cabinet announced that the Central Government will now take on the MDR fees for these transactions.
To encourage UPI transactions under Rs 2,000, the Union Cabinet has approved a financial incentive scheme worth around Rs 1,500 crore for the fiscal year 2024-25. This means the government will cover the MDR costs for payments under Rs 2,000 made by individuals to merchants.
What does this mean for everyone?
The government explained that the Union Cabinet, led by Prime Minister Narendra Modi, has greenlit this incentive plan to boost low-value BHIM-UPI transactions from individuals to merchants (P2M) for the 2024-25 fiscal year. The scheme will run from April 1, 2024, to March 31, 2025, with a projected budget of Rs 1,500 crore.
How will this help traders?
This initiative will specifically benefit small traders by covering MDR fees for UPI (P2M) transactions up to Rs 2,000. Small traders will receive incentives of 0.15 percent based on the transaction value for these payments. This move will relieve traders from having to pay these fees themselves or passing them on to customers. With the government taking on this cost, it will make things easier for both traders and consumers.
What is MDR
The Merchant Discount Rate (MDR) refers to the fee that merchants pay to payment processing companies for handling customer payments made via credit or debit cards or UPI. This fee typically amounts to about 1 percent of the transaction total. When a customer uses a credit or debit card or UPI for payment, the merchant incurs this cost. Often, merchants pass this expense onto their customers. However, the government has now chosen to cover this cost.