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23 August 2024 at 9:59:04 pm

Hidden Economics

The reassuring part of the new Unified Payments Interface (UPI) framework is that customers will apparently not be charged for using UPI. The more interesting part is who, then, pays for keeping one of the world’s most widely used digital-payment systems running. From October 15, a Merchant Discount Rate (MDR) of 0.4 percent will apply to specified person-to-merchant transactions above Rs. 2,000, with a ceiling of Rs. 300 on transactions of Rs. 75,000 or more. Person-to-person payments remain...

Hidden Economics

The reassuring part of the new Unified Payments Interface (UPI) framework is that customers will apparently not be charged for using UPI. The more interesting part is who, then, pays for keeping one of the world’s most widely used digital-payment systems running. From October 15, a Merchant Discount Rate (MDR) of 0.4 percent will apply to specified person-to-merchant transactions above Rs. 2,000, with a ceiling of Rs. 300 on transactions of Rs. 75,000 or more. Person-to-person payments remain free irrespective of the amount, while merchant payments up to Rs. 2,000 remain free. Small merchants receiving up to Rs. 1 lakh a month through UPI QR codes will also continue to enjoy zero MDR. The government says roughly 96 percent of merchant transactions will remain unaffected. So, technically, the customer is exempt. MDR is not a tax collected by the government or NPCI. It is a charge within the payments ecosystem, to be shared among banks, payment-service providers and UPI application providers. But that does not make the economics irrelevant to customers. A merchant who previously accepted a large UPI payment at no direct payment cost will now have to absorb a fee. The government has advised banks to ensure that merchants do not pass the MDR on to customers. The economic reality is less tidy. Businesses ultimately recover costs through their overall pricing. Whether the new charge appears as a visible surcharge, a change in discounts or simply becomes part of the cost of doing business will depend on the merchant and the market. That is why the real beneficiaries of the new framework are not necessarily the customers alone. Payment companies, banks and other participants in the UPI ecosystem acquire a new revenue stream from transactions that were previously free. Paytm, for instance, has said the new MDR will generate additional revenue from merchant transactions that earlier carried no such charge. The money is therefore being redistributed within the payments ecosystem. Small businesses are deliberately insulated, an important distinction in an economy where street vendors and neighbourhood shops have adopted QR payments because they are cheap and frictionless. There is also a larger question. UPI became ubiquitous partly because its basic proposition was brutally simple: instant payments without a visible charge. Introducing MDR for a slice of transactions changes that economic model. The government’s argument is that UPI needs a sustainable financial architecture as its scale grows. But sustainability should not be confused with costlessness. Someone has to finance the infrastructure, security and technology behind a system processing billions of transactions. For now, the customer remains protected. The real test will be whether merchants absorb the cost without quietly transferring it through prices and whether the revenue flowing to banks and fintech companies translates into a stronger, more resilient UPI ecosystem rather than simply a new source of income for its intermediaries.

Gamble and the Challenge

Writer: Abhijit Joshi
Abhijit Joshi
Nov 17, 2024
2 min read

Updated: Nov 18, 2024

Eknath Shinde

As Maharashtra eagerly anticipates the election results on November 23, one name dominates political discussions: Chief Minister Eknath Shinde. Known for his bold moves, Shinde has reshaped the state’s political dynamics in unprecedented ways. In June 2022, Shinde set the stage for upheaval when he, along with several MLAs, left for Surat, plunging the coalition government into crisis. Just days later, with the BJP’s support, he assumed the role of chief minister, marking a shift no one saw coming.


The Maharashtra Vikas Aghadi, a coalition formed in 2019 by Shiv Sena, Congress, and NCP, had governed Maharashtra until Shinde’s exit. The impact of this political drama on state politics cannot be understated, as Shinde’s departure led to the fall of the MVA government. Over the past two years, Shinde has defied expectations, run a successful government while demonstrating independence from the BJP—a scenario few anticipated. His political acumen has now positioned him as a rising figure in BJP’s inner circle, potentially posing a challenge to BJP stalwart Devendra Fadnavis.


For Shinde, this election marks a crucial turning point. His objective is clear: securing wins for as many of his candidates as possible, solidifying his position in Maharashtra’s political landscape. However, the real test lies beyond the election results. In a political era where party loyalty is fluid, Shinde’s task will be to retain the loyalty of the elected MLAs.


Shinde’s journey from auto-rickshaw driver to prominent Shiv Sena leader has endeared him to the people, especially in Thane. Known for his humble behavior, he has built strong connections across all levels, from party workers to local households. However, this simplicity has led some BJP leaders to underestimate him. Now, even his allies realize that Shinde’s strategic mind and influence extend far beyond appearances.


One of Shinde’s significant achievements has been implementing the ‘Ladki Bahin Yojana,’ an initiative originally from Madhya Pradesh’s BJP government, which gained immense popularity in Maharashtra. This move not only showcases his keen sense of public sentiment but also distances him from his allies by establishing his independent policy-making approach.


Despite his growing influence, Shinde faces a challenge from the grassroots Shiv Sainiks who view him as a “traitor” for breaking with the Uddhav Balasaheb Thackeray (UBT) faction. Recasting the narrative behind his decision to part ways with UBT will be essential if he hopes to gain widespread voter support.


Emphasizing his motivations and successes, particularly with initiatives like the ‘Ladki Bahin Yojana,’ may help him connect with skeptical constituents.


With solid connections at the local level and rapport with senior BJP leaders like Prime Minister Modi and Home Minister Amit Shah, Shinde’s influence is likely to endure. This election will ultimately test Shinde’s leadership, resilience, and ability to navigate Maharashtra’s intricate political landscape. As Maharashtra’s political future hangs in the balance, Shinde stands at the forefront, steering the state’s uncertain course with both determination and ambition.

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