In an email sent to its merchant partners on May 3, HDFC Bank informed that starting June 2, the following Merchant Discount Rate (MDR) fees will be applicable for UPI payments made from prepaid payment instruments (PPIs) such as wallets, gift cards, vouchers, etc: 1.2 percent for payments made to online and large offline merchants 1.2 percent for payments made to small offline merchants for amounts greater than Rs. 2000 (A small merchant is one whose annual turnover is less than Rs. 20 lakhs) Between 0.6 to 1.2 percent for payments made to merchants in the Industry Program, as listed in this Annexure These fees only apply to PPI-based UPI payments and not regular UPI payments made directly from the bank account. The latter constitutes over 99% of the UPI transactions. Why does this matter: One of the main reasons why UPI is popular is that merchants are not charged any fees for accepting payments. However, the National Payments Corporation of India (NPCI) on March 24 issued a circular announcing a 1.1 percent interchange fee for wallet-based UPI payments. The merchant’s bank/UPI payments solution provider would pay the customer’s UPI wallet provider this fee, but we didn't know if the bank would bear this fee and keep UPI free for merchants or pass this on to merchants. Based on HDFC's email it appears that banks are indeed looking to pass on this fee to merchants. But, keep in mind, while HDFC Bank is passing on this fee, other banks might…
