MDR On UPI Payments Likely To Force Street Vendors To Switch To Cash, Says ISB Survey

Hyderabad:Street vendors could return to cash transactions if proposed charges on UPI payments increase procurement costs, even if they are exempt from the levy, a study by the Indian School of Business (ISB) has found.

The study, ‘UPI Utilisation and MDR Awareness Among Street Vendors’, surveyed 722 vendors across 14 states and Union Territories and 64 urban local bodies between September 24 and October 10. It found that 67 per cent of vendors accepted UPI payments, while only 52 per cent were aware of the proposed Merchant Discount Rate (MDR) framework.

Under the proposal announced in September, a 0.4 per cent charge would apply to UPI transactions exceeding Rs 2,000. Small merchants receiving up to ₹1 lakh a month through QR payments would be exempt. The proposed October 15 rollout was postponed by the National Payments Corporation of India until after Diwali, with a fresh date yet to be announced.

The study found that nearly 70 per cent of vendors made supplier payments exceeding `2,000 per transaction. About 10.4 per cent reported that suppliers had demanded additional charges for UPI payments in the 10 days preceding the survey. All respondents said they would switch to cash if suppliers imposed additional charges.

“While transaction-size-based exemptions may protect small merchants at the retail level, these do not necessarily account for the costs incurred through wholesale procurement,” the study said.

“Street vendors buy goods from their suppliers in bulk. If a vendor is purchasing goods worth `15,000 from the supplier, he will have to pay around `60 MDR,” said Anand Sudhakaran, co-author of the study.

The researchers estimated that for a vendor earning a daily net margin of `1,000, a `60 charge would account for about six per cent of the profit.

The survey found that 53 per cent of vendors in Tier 1 cities and 45 per cent each in Tier 2 and Tier 3 cities would reduce acceptance of UPI payments if charges were introduced.

Among vendors who had faced additional charges from suppliers, 30.8 per cent said they would pass the cost on to customers, compared with 16.2 per cent of those who had not faced such charges.

“The problem with the current accounting is that it only shows the cost and not the benefits,” said Prof. Prasanna Tantri, executive director of ISB’s Centre for Analytical Finance, referring to the value of transaction data generated through digital payments.

The researchers recommended pilot studies and independent assessments of UPI operating costs. They also called for monitoring charges imposed by suppliers, increases in prices and any shift towards cash transactions to assess the impact of the proposed framework on digital payment adoption among small vendors.