Big retail chains and restaurants in India are absorbing the newly reintroduced Merchant Discount Rate (MDR) on UPI transactions, shielding consumers from direct price hikes. Industry executives confirm that major players, facing competitive pressure, will eat into their already thin margins rather than pass costs to customers. An executive at a top electronics retailer noted that while credit cards always carried fees, this move will weigh on bottom lines during a period of commodity inflation.
The squeeze hits smaller merchants hardest. The government exempted small merchants receiving up to Rs 1 lakh per month via UPI QR codes under the person-to-person-merchant category from MDR. However, many kirana stores in metros and major cities easily exceed this threshold. Dhairyashil Patil, president of the All India Consumer Products Distributors Federation, stated that close to 60% of payments at kirana stores are already processed through UPI.
Kumar Rajagopalan, executive director and CEO of the Retailers Association of India, warned that small merchants will now weigh whether to accept cash or UPI. To stay under the radar, independent fintech analyst Parijat Garg predicts merchants may split payments over Rs 2,000 into separate transactions to avoid the fee. This tactic will push up overall UPI volumes but complicates enforcement.
Regulators face a significant challenge tracking these workarounds. Small merchants can create multiple UPI IDs, making it difficult for authorities to monitor payment flows accurately. Garg called the move largely positive, expecting no dip in volumes, but flagged enforcement as the primary hurdle.
Anjan Chatterjee, founder of Speciality Restaurants (owner of Oh! Calcutta and Mainland China), confirmed his chain would not pass costs to consumers. With annual UPI transactions around Rs 7-8 crore, his restaurant group will absorb the impact, noting that a major chunk of their customer base is already credit-card oriented. The next test will be how quickly regulators detect and curb transaction-splitting strategies among small merchants.