MSME retailers might shift to cash to avoid MDR burden: Retailers Association of India

The recent levy of Merchant Discount Rate MDR on transfers worth more than Rs 2000 made to merchants through the UPI platform has caused concern among the retailers during the festive season with the Retailers Association of India cautioning that it could prompt small retailers to move to cash undoing years of progress in digital payment adoptionThe government on Tuesday had introduced 04 per cent charge on Unified Payments Interface UPI payments above Rs 2000 to merchants and capped the fee at Rs 300 for payments of Rs 75000 and above from October 15 ending nearly six years of fully free UPI paymentsThe extra burden could act as an incentive to go towards cash transactionFor MSME retailers already running on thin margins burden creates a straightforward incentive to steer transactions back toward cash The Retailers Association of India RAI said in a statementThe association which claims to represent players ranging from largeformat and specialty retail to ecommerce and quick commerce pointed out that with festive season underway and the cost burden placed on the merchants this might hurt the governments digitisation pushSmall merchants will now think twice about whether to accept cash or UPI said RAI CEO Kumar Rajagopalan said During the festive season a large share of transactions crosses the Rs 2000 mark and the moment a fee attaches itself to digital payment cash becomes the path of least resistance he addedThe retail body stated that the shift back to cash would also hurt the governments own formalisation push as transactions that move off the UPI network no longer feed into GST reportingThis cuts against the governments own formalisation agenda Rajagopalan said adding UPI acceptance should be incentivised not taxedRAI to pursue MDR issue with NPCI Finance MinistryThe retail association objected against treating all the UPI transactions as one category stating that most UPI payments draw directly from a savings or current account the digital equivalent of a debit transaction carrying none of the interchange cost or credit risk that justifies a fee on credit networksWe dont see the case for charging a banktobank UPI payment the way youd charge for credit Rajagopalan saidWhere UPI is linked to a credit line a fee is easier to defend because the cost structure genuinelyresembles a credit product We urge that the government should bear the cost of normal UPI transactions since it repays the government with GST and traceable transactions instead of cash transactions he addedThe state gets a formal traceable transaction it can tax out of every UPI payment It should bepaying for the enablement not passing the bill down to the smallest retailer in the chain he further saidRAI said it will pursue the issue with the National Payments Corporation of India and the Ministry of Finance seeking a graded structure that separates debitlinked from creditlinked UPI transactionsImpact during festive seasonSimilarly Clothing Manufacturers Association of India CMAI said it is likely to impact the sellers during the festive seasonIntroducing MDR on UPI at the start of festive season could not have come at a more challenging time for the industry This period is critical for merchants retailers and consumerfacing businesses many of whom are already working hard to revive demand and improve margins Adding another cost to digital transactions at this juncture risks putting further pressure on an ecosystem that is still finding its footing Santosh Katariya President Clothing Manufacturers Association of India CMAI saidUPI has been a powerful enabler of consumption and formalisation and any move that increases the cost of acceptance needs to be carefully calibrated particularly during the most important sales period of the year he addedGovt levies MDR on payments to merchants above Rs 2000On Tuesday the National Payments Corporation of India NPCI that operates UPI said an MDR of 04 per cent will be levied on Person to Merchant transactions above Rs 2000 while MDR will be capped at Rs 300 per transaction on highvalue payments of Rs 75000 and aboveEssential sectors like telecom insurance fuel sectors will pay a flat MDR of Rs 5 per transaction while payments towards mutual funds and stock brokers will attract an MDR of 002 per cent capped at Rs 300However small merchants receiving up to Rs 1 lakh per month will have mandatory zero MDR for all transactions