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94% Margin Gone? Businesses Opt Out of UPI
5 Oct
Summary
- Business stops UPI payments due to new charges effective October 10.
- New 0.4% MDR on UPI transactions above ₹2,000 squeezes margins.
- Businesses may increase prices or add fees to recover costs.
Pneucons, an industrial marketplace based in Ahmedabad, announced it will stop accepting UPI payments from October 10. This decision precedes the implementation of new merchant discount rate (MDR) charges on certain UPI transactions. The co-founder cited that the new charges would significantly impact the company's profit margins.
The government is introducing a 0.4% MDR for specific merchant UPI transactions exceeding ₹2,000, commencing October 15. While person-to-person payments remain free, businesses will bear this cost. For a typical order, this fee could consume nearly all of a business's commission, leaving minimal profit.
Experts suggest that merchants might eventually raise prices or add surcharges to offset these MDR costs. This situation draws parallels to the early days of food delivery platforms, which led to increased customer fees. The Karnataka Chief Minister has also voiced concerns, stating the new MDR places an unnecessary burden on traders.
Some sectors like railways and telecom will have a flat MDR of ₹5 on transactions above ₹2,000. However, small merchants receiving up to ₹1 lakh monthly via UPI QR codes will continue to be exempt from MDR under specific categories.
