Indian Stockbrokers, Retailers Balk at New Digital Payment Fee

Indian retailers and stockbrokers are worried that a new fee on payments through the state-backed digital network could increase costs, squeezing margins.

From Oct. 15, businesses will have to pay a merchant discount rate of as much as 0.4% on transactions above 2,000 rupees ($21) on the Unified Payments Interface. The levy will be capped at 300 rupees for transfers of 75,000 rupees or more.

The new fee — rolling out during the festival season — will apply to most UPI business payments by value. Spends above 2,000 rupees accounted for 67% of the money consumers paid to merchants on the network in August, despite making up just 4% of the volume, data from the operator National Payments Corporation of India showed.

It is a worry as many items and bill amounts can be more than 2,000 rupees during the festival season, said Kumar Rajagopalan, chief executive officer of the Retailers Association of India. “This could mean that some retailers start asking for cash instead of digital payments.”

From malls and mom-and-pop stores to roadside tea stalls, UPI transactions are ubiquitous, helping turn the country into the world’s biggest real-time payments market by volume. Soaring usage over the past decade prompted banks and payments firms to seek a fee to recoup some of the technology costs.

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A lower MDR of 0.02% — capped at 300 rupees — will be levied on payments above 2,000 rupees to securities firms. Brokers are concerned that they will end up paying the fee on money transferred by clients but not used for trading or investment.

“If we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue,” Nithin Kamath, chief executive at Zerodha Broking Ltd., India’s second-largest broker by active clients, said in a post on X.

Merchants have been reluctant to take on even modest costs. A LocalCircles survey of 32,796 businesses across 242 districts published earlier this month found 41% were unwilling to bear any fee on UPI payments above 2,000 rupees, while just 17% would accept a charge of 0.3% or higher.

While larger businesses are likely to absorb this with little friction, for those operating on tight margins, “even a small percentage can change how they think about accepting digital payments,” said Kunal Jhunjhunwala, founder of Mumbai-based Airpay Payment Services.

Small merchants receiving as much as 100,000 rupees a month on UPI will remain exempt, according to the statement Tuesday. The Finance Ministry advised businesses to absorb the levy and not pass it on to users.

“If there is any increase in costs, retailers and merchants will find a way to pass it on to consumers,” Rajagopalan said.

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