An Indian entrepreneur, J.K. Gokul Balaji, has penned an appeal to Prime Minister Narendra Modi, urging a reevaluation of the Merchant Discount Rate (MDR) applied to UPI transactions. Balaji, who is the founder of Nachiyar Digital Solutions and a BJP social media cell district president from Madurai, argues that while the government's digital payment initiatives are commendable, the current MDR structure disproportionately impacts the thin margins of small businesses.
The entrepreneur emphasized that his concern isn't opposition to the system but a genuine desire to foster successful businesses in India. He highlighted that many small enterprises operate on very tight profit margins, and the MDR, though appearing small in relation to a large transaction value, can consume a significant portion of their actual earnings.
The Impact on Small Business Margins
Balaji illustrated his point with a concrete example: a laptop purchased for ₹77,500 and sold for ₹80,000 yields a margin of just ₹2,500. Under the current UPI MDR rules, a ₹300 charge on such a transaction (which falls under the cap for payments of ₹75,000 and above) would effectively wipe out 12% of that meager profit. He pointed out that this is just one of many operational costs businesses face, including POS & Card MDR, GST, bank charges, rent, electricity, and transportation.
He further elaborated, "A business may generate ₹10 lakh in monthly turnover, but after purchasing the products, the actual margin may still be only ₹30,000 - ₹40,000." This stark reality, he contends, makes the MDR a substantial burden, especially when considering the "real expenses" behind a seemingly large turnover.
Understanding UPI MDR Rules
The government recently announced new Merchant Discount Rate rules for UPI transactions. No MDR is charged on transactions up to ₹2,000. For amounts exceeding this, a 0.4% fee is levied. For instance, a ₹3,000 purchase incurs a ₹12 MDR, which the merchant pays to their acquiring bank, and this commission is then shared among payment ecosystem partners. A cap of ₹300 per transaction is applied to high-value payments of ₹75,000 and above.
Crucially, person-to-person (P2P) transactions remain free regardless of the amount. Small merchants with monthly receipts up to ₹1 lakh continue to enjoy zero MDR on all transactions. Banks have been advised to ensure that merchants do not pass these MDR charges on to customers for UPI payments. Additionally, a dedicated fund, supported by 5% of total MDR collections, is being established to promote UPI usage among small merchants.
A Call for Margin-Based Consideration
While acknowledging the need for investment to sustain UPI and expressing his voluntary acceptance of GST registration for India's growth, Balaji's "humble request" remains clear: to consider the actual margin of a business, not just the transaction value. He believes that while a ₹300 charge might be manageable for large, high-margin businesses like manufacturers or hotels, it represents an "enormous difference" for a small entrepreneur struggling with narrow profits.