Nowadays, whenever we make purchases—whether in the market or online—we use UPI, debit cards, or credit cards for payment. But have you ever wondered which of these methods is the most cost-effective for shopkeepers or merchants? Recently, the National Payments Corporation of India (NPCI) clarified that, even with the introduction of new charges, making payments via UPI is significantly cheaper compared to using cards. Let us explore this in detail. MDR applicable on transactions exceeding ₹2,000:
As per NPCI guidelines, a Merchant Discount Rate (MDR) of 0.4% has been implemented on certain merchant (P2M) transactions exceeding ₹2,000, effective October 15. However, the general public need not be concerned, as this charge is levied on the shopkeeper (merchant) rather than the customer. Furthermore, small businesses and routine transactions have been completely exempted from this rule.
Which is cheaper: UPI, Debit, or Credit?
When comparing merchant charges across payment methods, the MDR for UPI has been fixed at 0.4% (with a maximum cap of ₹300). On the other hand, merchants have to pay charges of up to approximately 0.90% for debit card payments and an average of up to 2% for credit card payments. Viewed from this perspective, accepting payments via UPI proves to be about 80% cheaper for shopkeepers compared to credit cards for a transaction of ₹10,000.
Charge of ₹40 on a ₹10,000 transaction:
This can be understood with a simple example. If a customer makes a payment of ₹10,000 at a shop, the merchant would incur a charge of only ₹40 for UPI transactions, based on an MDR of 0.4%. For a transaction of ₹10,000, charges of approximately ₹90 are deducted for debit cards and an average of ₹200 for credit cards. This calculation clearly shows that UPI enables significant savings for merchants, even on large transactions.
What are the charges based on the transaction amount?
A welcome aspect is that approximately 96% of daily UPI payments incur zero MDR (Merchant Discount Rate). There are no charges on merchant transactions up to ₹2,000. For amounts exceeding ₹2,000, charges apply—such as ₹20 for ₹5,000 and ₹40 for ₹10,000—with a maximum cap of ₹300 for transactions of ₹75,000 or ₹1 lakh. Additionally, for essential and low-margin services such as railways, telecommunications, insurance, fuel, and agriculture, a flat MDR of ₹5 has been fixed for payments exceeding ₹2,000, replacing the percentage-based model. Overall, in the era of Digital India, UPI is not only easy to use but also stands out as the most cost-effective and best option for merchants compared to credit and debit cards.
