Indian retailers and fuel dealers resist new UPI payment charges
Retailers and fuel pump operators in India are pushing back against new UPI payment charges, citing thin profit margins that could hinder digital payment adoption among small merchants.
Fuel pump dealers and retailers across India are voicing strong opposition to the new Merchant Discount Rate (MDR) framework for UPI (Unified Payments Interface) transactions. Industry bodies argue that the levy, set to take effect on October 15, is unworkable given their thin profit margins and could compromise the adoption of digital payments, particularly among small merchants.
Union Finance Minister Nirmala Sitharaman clarified that MDR is neither a tax nor a cess but a charge for service providers to maintain UPI infrastructure. She reiterated that the cost would not be passed on to consumers. The framework introduces a flat Rs 5 MDR for person-to-merchant (P2M) UPI transactions exceeding Rs 2,000 in sectors like fuel. Capital market transactions will see a 0.02% MDR capped at Rs 300, while the standard rate for specified UPI transactions above Rs 2,000 is 0.4%.
Despite the finance minister's assurance, some merchants have threatened to stop accepting UPI payments for high-value purchases. The Madhya Pradesh Petroleum Dealers Association announced that its members will not accept UPI payments above Rs 2,000 from October 16. They estimate this could result in a monthly loss of approximately Rs 17,700 per station, a burden they cannot absorb due to their small profit margins.
The Retailers Association of India (RAI) warned that the reintroduction of MDR could undo years of digital payment progress and incentivize a shift back to cash for small businesses. RAI CEO Kumar Rajagopalan stated that the fee attaches a cost to digital payments, making cash the path of least resistance, which contradicts the government's formalization agenda as cash transactions bypass GST reporting.
Merchant groups also question the rationale of charging UPI transactions, which are largely direct bank-to-bank transfers, similarly to credit card payments that involve higher interchange costs and credit risks. They argue that the cost of maintaining the UPI network should be borne by the government or NPCI, not by the merchants.