It seems that the MDR fees of credit cards has officially caught up with the UPI transactions. UPI which stands for Unified Payments Interface is a payment method of India that conduct seamless transactions with minimum to know cost at all. In past I have praised about the functions of UPI but at the same time I knew for a fact that when it comes to Credit Cards UPI is a bad choice. The primary reason for me was that there is a MDR fee that is charged to the merchant every time someone pays via Credit Card. So now that we can add Rupay Credit Cards to the UPI system a large number of merchants have already started to complain to the banks to disable the system. As the merchants are being forced to pay hefty MDR fees for all the Credit Card transactions that are going through the UPI system.
The issue has started now because up transactions with Credit Cards have reached a peak of about 60-100 crores per day for approximately 4 months. This means on an average 3-5 crores are being spent by the merchants as MDR fees every single day. The market share of Rupay Credit Cards having increased significantly in the last couple of months and this is the reason why the transaction volume has seen a significant boost.
I said before I knew that Credit Cards and UPI were bad for each other but I really hoped that it would work. The reason why this is failing is because people use UPI here in India primarily for making small payments such as buying milk or buying some groceries,etc. This is the reason why the MDR fees stack up a lot and the merchants losing out on their profits.
I AM TOTALLY ROOTING FOR THIS TO WORK BUT I BELIEVE THIS SYSTEM NEEDS A MAJOR OVERHAUL IF THEY WANT TO SUCCEED IN FUTURE.
POSSIBLE SOLUTION
One possible solution for this which just came in mind would be the limit the transaction amount on UPI via Credit Cards to a certain amount. For example the banks could say that in order to use Credit Cards via UPI their needs to be a minimum transaction amount of at least 5000 Indian rupees. This way the overall volume of UPI transactions via Credit Card reduces as a lot and at the same time the merchant receives a big chunk of money at once.
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