You should set aside the worry about the UPI payment. The government has said that there would not be any charge or MDR on the digital transaction. As of now the payment through BHI UPI, UPI QR code and Aadhaar Pay are free. But we all were apprehensive that this party may end. In the near future, we would have to pay the charge for this type of payment. In budget 2019-20, the finance minister Nirmala Sitharaman had announced this good news for promoting the less-cash economy.
1- Free Digital Transaction
There would not be any charge on the customers for the digital transaction. Thus the customer would pay the same amount as for the cash. As of now, the customer is not paying any such charge as banks were not charging to promote the digital transaction.
2. No MDR by the Banks
The banks would not be able to charge any MDR or other costs from the merchant as well. Today, banks are not charging MDR for non-card digital transaction. But there is MDR of 1-2% for debit and credit card payment.
3. Free Modes of Transaction
The government has directed to not charge for the following modes of the payment.
4. Charge For Credit Card
Note, the credit card payments are excluded, hence there would be MDR on payment from that. Banks and payment gateways charge MDR for the card service. Recently, the RBI has waived fees for the NEFT and RTGS as well.
5. Digital Transaction Option Mandatory
The merchants have to give digital payment options as well. It is mandatory if the annual turnover of the business exceeds ₹50 crore.
6. Banks and RBI Would Absorb Cost
The FM has said in the budget speech that the RBI and banks would absorb the cost of digital payments as they would save cost because of less cash handling. There would be more deposits in the bank accounts as well.
7. Payment Act Would Be Amended
The government would soon amend the Payment act and Income Tax act to implement these announcements.
8. Already Waiver for Small Transactions
MDR is already not charged for Small value transactions. The government has waived the MDR after the demonetization. This waiver was applicable up to 31st December 2019. But, this announcement has included all the transactions and there is no end date.
9. Existing MDR on Cards
MDR is basically charged on the card payments. The government has earlier limited this charge for the debit cards. According to the recent rules Banks can charge maximum 0.4% MDR from the small merchant while 0.9% MDR from the Large merchants. There is no such limit for the credit card payments. MDR for the credit cards can go 2% -2.5%.
10. Why MDR
MDR stands for the Merchant Discount Rate. The banks charge this amount for their services. The card payment of digital payment involves multiple player and technology. The banks provide the credit and debit facility in the account. Often banks and sometimes other agencies provide Point of Sale or Swipe machine for getting payment. Moreover, Car payment services such as Visa, Mastercard, and Rupay facilitates the payment gateway for every type of debit card and credit card. However, in the case of UPI, UPI QR code, IMPS, NEFT and RTGS, the cost is low. It is getting lower because of the higher volume and technological advancement.