Pune: Traders in Pune and Pimpri Chinchwad are a worried lot following the Centre’s proposal that merchants pay a 0.4% charge on UPI payments exceeding Rs 2,000.
Impact of Digital Transaction Fees on Retail Margins
Businesses in commercial zones such as Pimpri Camp and Market Yard are increasingly adopting digital transactions. However, the introduction of new transaction fees could elevate their operational costs, affecting their already narrow profit margins.
According to Sachin Nivangune, state president of the Confederation of All India Traders, profit margins in the grocery sector typically range from 2% to 13%. Retailers must cover various expenses from these margins, including rent, salaries, taxes, and other operational costs. The potential increase in fees may further strain these thin margins, posing challenges for businesses trying to maintain profitability in a competitive market.
Wasim Shaikh, who runs a mobile phone shop in Pimpri Camp, said most businesses in the area operate on a wholesale model and nearly every transaction exceeds Rs 2,000. Under the Centre’s new MDR (merchant discount rate) proposal, sellers must pay 0.4% on every transaction above Rs 2,000, subject to a maximum charge of Rs 300 per transaction. For instance, a merchant receiving a Rs 50,000 payment would pay Rs 200 as MDR. UPI payments for essential services, such as rail ticket booking, insurance premiums and telecom, will attract a flat Rs 5 fee. traders said most businesses in Pune have higher volumes While the govt has exempted businesses with an average monthly transaction volumes of less than Rs 1 lakh. Kedar Bidwai, who runs a clothing store in Hadapsar, said his products start around Rs 1,400 and nearly 80% of the transactions would be chargeable. Mohsin Shaikh, a further store owner in Kondhwa, says, “Almost all transactions at my shop exceed Rs 2,000, while my daily volume often crosses Rs 75,000. Considering that most consumers now prefer online payments, we could end up paying more than Rs 300 a day and around Rs 9,000 a month.
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“It would be unfair to charge us on every transaction,” he said, suggesting that some wholesale businesses, or those with discretionary pricing (such as garments), might pass the cost onto consumers. “In such a situation, it may be better to shift to cash payments rather than pay for using UPI,” he said. One section of the traders said increased UPI payments improved GST compliance and suggested moving back to cash in certain cases could affect this. People may shift towards cash transactions to save money, which could also affect GST collections,” Rajendra Bathiya, president of the Poona Merchants Association, said. It is being reintroduced selectively, rather than across the entire UPI ecosystem,” Rohit Taneja, CEO of Decentro, a fintech company, said. A balanced MDR framework can help create sustainable economics for banks, payment providers and last-mile networks while ensuring costs do not become a barrier to digital payment adoption,” he said.
“Imposing an additional charge on UPI transactions will put an extra burden on merchants. On the other hand, the fintech sector has welcomed the proposal, particularly the decision to leave peer-to-peer (P2P) transactions out of its ambit. “MDR keeps the zero-cost nature of UPI for consumers and protects small merchants, while introducing a targeted MDR for larger-value merchant transactions. Dilip Modi, who founded Spice Money, suggested the govt should consider the interests of all stakeholders. “The focus should be on ensuring that the cost of transactions remains manageable for merchants, particularly small businesses operating on thin margins. Download the TOI App.