In recent years, Indians have shifted towards a cashless economy and made digital payments using UPI new apps. UPI has been the backbone of cashless transactions, allowing users to make online transactions without the need to carry cash or cards everywhere. The introduction of the Zero Merchant Discount Rate (MDR) has impacted businesses using UPI as a mode of payment, especially small and medium firms.
In this article, we’ll understand how Zero MDR impacts businesses, its challenges, and the role of UPI wallets and online platforms.
What is Zero MDR?
Zero MDR refers to the fee that merchants have to pay to banks or service providers for processing digital transactions, specifically for UPI and card transactions. In 2020, the government of India eliminated the system, and merchants no longer had to pay transactional fees. While this was beneficial for merchants and promoted a cashless economy, it impacted the financial institutions that were dependent on MDR for revenue.
Benefits of Zero MDR on Businesses
Let’s explore how the introduction of the Zero MDR payment concept was beneficial to businesses:
- Encourages Digital Payments: The elimination of transactional costs has encouraged businesses to engage in online transactions and use UPI Lite payment apps and UPI apps like Bajaj Finserv.
- Increased Savings: Since businesses now don’t have to pay any fees to banks or service providers, they make significant savings and invest the money somewhere else.
- Boosts Small Businesses: Small businesses and startups that have a low margin on their products and services have benefited the most as they can implement digital transactions without worrying about paying extra charges and grow their consumer base.
- Improves Cash Flow Management: Businesses can receive payments in UPI on wallets, reducing the worry of depending on keeping cash and ensuring better financial tracking.
- Enhances Customer Convenience: Nowadays, consumers are shifting towards making UPI payments, and when it is implemented successfully by the merchant, it improves their experience, which increases customer retention for businesses.
Challenges Faced by Businesses and Service Providers Due to Zero MDR
While the Zero MDR has promoted digital transactions, it has been challenging for businesses and service providers. Here’s how:
- Increased Competition: Since the transactional cost has been eliminated, more businesses are implementing digital payments via UPI new apps, which has increased the competition among merchants.
- Price Wars: There might be price wars between businesses to attract new customers, merchants may introduce several offers and low prices, impacting the profitability of others.
- Reduced Revenue: The elimination of the MDR has severely impacted banks and payment service providers that depend on it for revenue.
- Impact on Innovation: The providers that depend on MDR revenue to fund the introduction of new features have to slow down the growth and advancements of the UPI Lite payment apps and other platforms.
- Security Risks: Since more businesses are using UPI for digital transactions, they have to be aware of cybersecurity threats and online fraud and improve their security.
The Role of UPI, UPI Lite and UPI Wallets
To address the above challenges, here’s the role of UPI-based solutions in ensuring smooth transactions:
- UPI Lite Application: It allows users to make low-value payments directly without entering banking details or PINs every time. This reduces the maintenance and burden of banking infrastructure to improve speed and efficiency.
- UPI Application: The UPI apps with enhanced and improved features have enhanced security and design, and offer fraud alerts, which improve user experience.
- UPI Wallets: UPI on wallets by online platforms offers users a seamless experience, allowing businesses to provide customers with multiple payment options.
Final Thoughts
The implementation of Zero MDR has had both positive and negative effects on businesses. While it encouraged digital payment adoption and provided cost-saving benefits, it has been challenging for banks and service providers. However, UPI apps and wallets have been helping these businesses overcome these challenges. With the ever-evolving landscape, it is crucial for businesses to stay updated and implement the changes to ensure a smooth experience for customers.