The All India Consumer Products Distributors Federation (AICPDF) has raised a red flag against the proposed Merchant Discount Rate (MDR) on UPI transactions. MDR is a fee that a shopkeeper or business pays to the bank for processing digital payments. Currently, UPI is mostly free, but new talks suggest a 0.4% charge might be coming. The federation has written to the Prime Minister asking to keep UPI free for merchants.

FMCG distributors and small retailers work on very thin margins (the small profit left after all costs). The group argues that even a small 0.4% fee could eat up a huge chunk of their actual earnings. They believe that if the government wants to recover the cost of running UPI, the burden should not fall solely on the shopkeeper. According to their data, the cost to run the UPI system is only about 0.06% of the total transaction value, which is much lower than the proposed fee.

The AICPDF highlighted that the government already gives special treatment to some sectors. For example, fuel, insurance, and railways pay a flat fee of only Rs. 5 instead of a percentage. The distributors want to know why the FMCG sector, which also handles high volumes of goods with low profits, is not getting similar relief. They are worried that if digital payments become expensive, they will be forced back into using cash, which also has its own handling costs.

A major concern raised is about B2B (Business-to-Business) payments. In the supply chain, a retailer pays a distributor, and the distributor pays the company. The AICPDF argues that these are not regular consumer purchases but commercial settlements. If MDR is charged at every step, it creates a 'cascading' effect where the same money is taxed multiple times, making the whole supply chain expensive. They want these B2B settlements to be fully exempt from any fees.

There is also confusion regarding a proposed Rs. 1 lakh monthly limit. The federation wants the government to clarify how this limit will work. They are asking for a system where merchants are clearly notified when they hit the limit. More importantly, they want to ensure that the government does not charge fees retrospectively (charging for past transactions) once the limit is crossed.

For bank officers and staff, this development is crucial as it could impact UPI adoption rates at merchant points. If these fees are implemented, bank branches might see more requests for cash withdrawals or complaints from local traders about transaction costs. Bankers should watch for official circulars from NPCI or the Finance Ministry regarding the final decision on MDR and the specific rules for the Rs. 1 lakh threshold.