Potential issues with UPI MDR
While Govt is hell bent on introducing MDR on UPI, the policy makers and decision makers seem unable to forsee how such a rule will change patterns.
#1 Increased tax evasion.
Merchant will ask for cash instead of UPI, customer will say I will give cash, I don't need bill, remove that 18% GST. This way tax evasion will increase. With more cash at hand, merchant will tell his/her supplier to take payment in cash, without invoice and the cycle continues.
Govt had sent income tax notices to pani puri vendors, vegetable vendors saying "you are getting lakhs of rupees in bank but not paying tax". With cash, no way to track any of these
#2 Increased cash handling charges
Banks will have to load ATMs more often- more cash printing and handling changes
#3 Reduced bank deposit amount, interest and tax
Beyond 3 withdrawals banks are now charging to take our own money from ATM. So someone who needs 5000 Rs will withdraw 25000 Rs because if he needs again he may be charged. With crores of people do this, liquidity in banks will drop. Banks will have less money to give as loans or invest elsewhere.
When there is less money in bank account, interest earned will be less. Govt charges income tax on bank savings interest- so with reduced deposits and interest, tax earned by Govt also will drop
#4 Fake notes & pocket theft will boom
If everyone returns to cash, those who can print fake notes will have gala time. Thieves who do pickpocket or robbery will have gala time. More load on law enforcement, more inconvenience to everyone involved
#5 Price will increase across the board
So far merchants had 2 pricing- if you pay by credit card 2% extra, cash, UPI no extra charge.
Now UPI above 2000 INR will cost them, but they can't maintain 3 prices- one for credit card, one for UPI, one for cash. Govt will take them to task if UPI MDR is passed on to merchants. Also it is hard to track which customers buy more than 2000. So to avoid these complications merchants will simply increase the price across the board by 2%. Even those ready to pay with cash will have to pay more.
Fuel stations across the country have already declared they will pass the burden to consumers. Govt has no way to ensure merchants do not pass this cost. While businesses with 20-30% margin (like restaurants) may be OK to pay MDR, those operating on wafer thin margin will resist this, fairly so.
#6 Load on system will increase
Software cost is same irrespective of a user transferring 1 INR or 1 lakh INR. But with charges above 2000 INR, most consumers will try to split the transaction so that at a time only 1999 is transferred. If a 20000 INR transaction is split into 10 2000 INR transactions, unnecessarily load on UPI infrastructure increases 10x. Already apps have surfaced that split a large payment into multiple smaller payment of under 2000 INR.
If some of them fail, again too much stress on both merchant and consumer.
#7 May impact overseas implementation
UPI is being offered in Singapore, France and other overseas destination. Once the consumers there learn that eventually we will be charged for UPI just like it is happening in India, they will be more cautious and adoption will be impacted.
#8 Secret benefits of UPI get nullified
With people shifting towards cashless economy, banks, Govt saved lots of money
- - Less cash printing, transportation, loading, ATM operation cost
- - Less branches, staff needed
- - More money left in bank for better investment and loan
- - Higher tracking, data on how money is used, which could be used for advertising and other optimization solutions
- - Reduced tax evasion
- - Reduced incidents of fake notes, robbery
- - Reputation for building and implementing something unique many countries do not have.
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