Winning Bizness Desk

Mumbai.A large majority of merchants are unwilling to bear the new UPI charge on high-value transactions, while most users say they would shift to other payment methods if the cost is passed on to them. The findings come from a LocalCircles survey covering merchants and UPI users across hundreds of districts.

Under the new rules, a 0.4% Merchant Discount Rate (MDR) will apply from October 15 on UPI merchant payments above Rs 2,000. The survey indicates that the proposed charge could affect both merchants and consumers, particularly in high-value digital transactions.

Only 17% merchants willing to bear UPI charge

LocalCircles surveyed more than 32,000 merchants across 242 districts to understand their willingness to absorb the 0.4% MDR.

The findings show that only 17% of merchants are prepared to bear the full proposed charge themselves.

• 41% said they would not pay any fee.
• 15% were willing to pay a maximum of 0.04%.
• 9% said they do not accept UPI payments.
• Overall, 83% of merchants are unwilling to absorb the proposed MDR.
• The findings point to limited acceptance among merchants for directly bearing the additional transaction cost.

Most users may abandon UPI for high-value payments

The survey also sought the views of more than 67,000 UPI users across 291 districts on the possibility of merchants passing the charge on to customers. As many as 86% said they would not use UPI for payments above Rs 2,000 if an additional charge was imposed on them.

• 26% said they would pay in cash.
• 26% would use a credit card.
• 13% would use a debit card.
• 11% would continue using UPI despite the additional charge.
• 9% would ask for another payment option without a charge.
• 4% would opt for a bank transfer.
• 2% would postpone the purchase.
• 4% did not express an opinion.
• High-value UPI payments form small share of transactions

Payments above Rs 2,000 account for less than 5% of merchant UPI transactions by volume. However, their contribution to the total transaction value is significantly higher. According to the survey, these high-value payments account for nearly 67% of the total money transacted through merchant UPI payments.

This amounts to around Rs 6 lakh crore every month, or nearly 20% of the total value of UPI transactions across the country. Thus, while transactions above Rs 2,000 are relatively few in number, they represent a substantial share of the money moving through the UPI ecosystem.

Merchants face limited options to recover additional costs

With 83% of merchants unwilling to absorb the MDR, businesses could consider several ways to manage the additional cost. They could either impose a surcharge on customers, incorporate the cost into the prices of products and services, or encourage customers to use other payment methods. The survey findings suggest that each of these options could have an impact on consumer payment behaviour.

Passing fee to customers could reduce UPI use

The response from consumers indicates that passing the entire cost to them may lead many high-value UPI users towards cash, credit cards, debit cards and other alternatives.

This could affect UPI usage particularly in transactions where the payment value crosses the Rs 2,000 threshold. The potential shift is significant because high-value transactions account for a much larger share of transaction value than their numbers suggest.

New charge could affect high-value digital payments

The LocalCircles findings highlight a clear disconnect between merchant and consumer preferences. Merchants largely do not want to bear the MDR, while consumers are also reluctant to pay an additional charge for UPI transactions above Rs 2,000.

With nearly Rs 6 lakh crore worth of such payments taking place every month, any shift away from UPI in this segment could affect a sizeable portion of digital payment value. The survey therefore shows that the implementation of the 0.4% MDR could have a direct bearing on how merchants and consumers choose to make high-value payments.