A marriage made in heaven: how the humble QR code met the small merchant

Summary

UPI transformed merchant payments from a cash-and-change routine into a low-cost digital habit. As India reconsiders MDR, the challenge is to fund future innovation and cyber resilience without undermining adoption.

Can you remember the last time a shopkeeper handed you a toffee from a jar because they did not have small change? For decades, this was the norm at kirana stores and pharmacies across India. Today, that jar has all but disappeared. Some say an unintended consequence of the UPI revolution has been a secular decline in candy sales. That is partly because, over the past ten years, UPI has rewritten the payment experience for customers and merchants alike.

The controversy over the return of the Merchant Discount Rate, or MDR, on UPI payments frames it as a consequential pricing question. But before arguing over who should pay for digital payments, it is worth revisiting how arduous person-to-merchant (P2M) payments once were, and how far India has come since UPI.

In the toffee-jar era, small and micro-merchants operated in a cash-dominated world: managing change, maintaining handwritten accounts and making periodic bank visits. Customers without exact change altered their purchasing behaviour, sought store credit or accepted candies instead.

To accept card-based electronic payments, merchants had to grapple with paperwork, point-of-sale machines, rental charges, connectivity issues and transaction fees. For large retailers, these costs were manageable. For tea sellers, vegetable vendors and tyre shops, however, digital payments were rarely worth the overheads.

The QR breakthrough