MDR on UPI not a tax, will help upgrade digital infrastructure: TV Mohandas Pai
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New Delhi, Sep 16 : TV Mohandas Pai, Chairman of Aarin Capital and former CFO and board member at Infosys, on Wednesday welcomed the MDR decision on UPI, saying that 96 per cent of UPI transactions will not be affected by the charges.
Speaking to reporters in Bengaluru, Pai said 96 per cent of transactions will be beyond MDR.
“Because roughly 70 per cent of all payments are person-to-person (P2P) — which carries no charges whatsoever. The remaining payments below Rs 2,000 are also completely exempt. Only transactions above Rs 2,000 will be subject to a nominal MDR. It is important to clarify that MDR is not a tax. It is a payment made to the banks and payment providers, similar to how credit cards work,” Pai noted.
“When you use a credit card, merchants pay a processing fee to the credit card company and the bank. Furthermore, if someone needs to make a payment of Rs 2,500, most people will simply split it into two smaller payments. By paying Rs 1,500 and Rs 1,000, and remain below the Rs 2,000 threshold,” he explained.
The financial losses and capital investments required to maintain this infrastructure have been huge, he maintained.
“In the past, UPI experienced transaction failure rates as high as 15 per cent to 30 per cent due to sudden surges in volume. With transaction volumes expected to grow from 24 billion to 50 billion in two years, the entire IT infrastructure must be upgraded to support real-time processing. Who is going to fund that upgrade? If banks bear the entire cost, it ultimately impacts depositors. Instead, the cost will now be shared by merchants who directly benefit from offering online payments,” Pai further stated.
On the 0.4 per cent UPI charge on merchant transactions exceeding Rs 2,000, Rajasthan Finance Commission Chairman Arun Chaturvedi said that today, the world is appreciating India for emerging as the leading nation in terms of online payments, with the highest number of transactions being carried out through UPI.
“India has established its identity in economic transactions globally,” he told IANS.
Speaking to reporters in Bengaluru, Pai said 96 per cent of transactions will be beyond MDR.
“Because roughly 70 per cent of all payments are person-to-person (P2P) — which carries no charges whatsoever. The remaining payments below Rs 2,000 are also completely exempt. Only transactions above Rs 2,000 will be subject to a nominal MDR. It is important to clarify that MDR is not a tax. It is a payment made to the banks and payment providers, similar to how credit cards work,” Pai noted.
“When you use a credit card, merchants pay a processing fee to the credit card company and the bank. Furthermore, if someone needs to make a payment of Rs 2,500, most people will simply split it into two smaller payments. By paying Rs 1,500 and Rs 1,000, and remain below the Rs 2,000 threshold,” he explained.
The financial losses and capital investments required to maintain this infrastructure have been huge, he maintained.
“In the past, UPI experienced transaction failure rates as high as 15 per cent to 30 per cent due to sudden surges in volume. With transaction volumes expected to grow from 24 billion to 50 billion in two years, the entire IT infrastructure must be upgraded to support real-time processing. Who is going to fund that upgrade? If banks bear the entire cost, it ultimately impacts depositors. Instead, the cost will now be shared by merchants who directly benefit from offering online payments,” Pai further stated.
On the 0.4 per cent UPI charge on merchant transactions exceeding Rs 2,000, Rajasthan Finance Commission Chairman Arun Chaturvedi said that today, the world is appreciating India for emerging as the leading nation in terms of online payments, with the highest number of transactions being carried out through UPI.
“India has established its identity in economic transactions globally,” he told IANS.
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Note: The content of this article is sourced from a news agency and has not been edited by the ap7am team.