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India’s rapidly changing digital payments ecosystem has seen a huge and revolutionary change in the last few years. Today, customers everywhere in the country, from small to big cities, from corner shops to big shopping malls, get many options to make payments. Among these options, while on one hand traditional Debit & Credit Cards are maintaining their strong hold, on the other hand Unified Payment Interface i.e. UPI With its fast speed and ease of use, it has captured the pocket and shop of every Indian. Between these two mediums, a big question always lingers in the minds of the merchants and shopkeepers of the country that which option between card and UPI is more beneficial for their business in accepting payments from customers and why there is such a big difference in the fee structure of both.
What is Merchant Discount Rate (MDR) and how does it work
When any customer goes to a shop and makes payment through his debit card or credit card, the shopkeeper does not get the entire amount as is deducted from the customer’s account. A special charge is applied in this entire process, which is called Merchant Discount Rate i.e. MDR It is said. This is a type of service charge or fee that the merchant has to pay to the payment gateway, bank and card network (like Visa, MasterCard or RuPay) in return for processing that transaction. For small and medium scale merchants (MSMEs) in a developing country like India, this MDR charge often has a direct impact on profits. If a shopkeeper’s profit margin is already low, this percentage cut on every card swipe affects his overall earnings, due to which merchants are always looking for alternatives where they do not have to pay additional costs.
The magic of UPI and the zero MDR policy
On the contrary, if we talk about India’s own indigenous and globally appreciated digital payment system i.e. UPI, then the picture looks completely different and very relieving. Currently zero limit on UPI transactions to promote digital economy by the Government of India and the Reserve Bank of India (RBI). MDR The policy has been implemented. This simply means that if a customer makes payment to a small shopkeeper through UPI by scanning the QR code, then the shopkeeper does not have to pay any MDR fee to the bank or any other financial intermediary on that transaction. Whatever money the customer sends, the entire amount is deposited directly into the merchant’s bank account without any deduction. This is the main reason why small shopkeepers, street vendors and grocery store operators in India have preferred to keep and use UPI QR codes in their shops compared to card machines (POS Machines).
Big difference in profits and costs for small and medium merchants
This difference in MDR between card and UPI has become a huge factor of life and death or rather business survival for small and medium scale merchants. The profit margins of millions of small merchants in India are very limited, so if they keep paying 1% to 2% MDR charge to the banks on every customer’s card transaction, then at the end of the month a large part of their total earnings goes towards this cost. On the contrary, when transacting through UPI, this additional burden becomes completely zero. However, in some cases it has also been observed that the average ticket size of the expenditure through credit card is higher than that of UPI, because while purchasing big and expensive items, customers often prefer to use credit cards so that they can get reward points or easy EMIs. [EMI] Can get benefit of.
Security, Settlement and Technical Challenges
Apart from the financial cost, both these payment systems have their own aspects of technical settlement and security. Card payments have many stringent security standards and chargeback rules at the bank level, but for this, shopkeepers have to go through point-of-sale. [POS] Monthly rent of the machine or its maintenance expenses also have to be borne. On the other hand, UPI is a completely smartphone-based and internet connectivity based system, which does not require any physical machine but a simple paper QR code is enough. However, for large business establishments and supermarkets where thousands of customers stand in the queue at the same time, it is considered necessary to have both the methods so that the customers can pay as per their convenience and there is no hindrance in the business speed.
Future Indian Digital Payment Market and Conclusion
As India’s fintech sector and digital infrastructure becomes an example across the world, both the card and UPI continue to have their own relevance and utility. The government and regulatory bodies are working to ensure that every merchant in the country can adopt digital payments without any heavy financial burden. Credit Card on UPI in the coming time [Credit Card on UPI] The lines between these two are going to become even more interesting with the advent of new technologies, where customers will be able to get credit card facilities and merchants will get better business opportunities simultaneously. Overall, it is important for merchants to make balanced use of both cards and UPI keeping in mind the trends of their customers and their business margins so that their business grows and profits are also protected.