Key Points
- The central government is considering reintroducing Merchant Discount Rate (MDR) fees for UPI transactions above ₹3,000, while keeping smaller transactions free.
- The move aims to address rising operational costs for banks and payment companies, as UPI now accounts for 80% of retail digital payments.
- The Payments Council of India has proposed a 0.3% MDR for large merchants, with RuPay credit cards remaining exempt.
- A final decision is expected within the next 12 months after consultations with stakeholders.
- The government’s goal is to make the digital payments ecosystem more sustainable, ensuring continued investment in infrastructure and technology.
New Delhi: The Indian government is preparing to make a significant change to the Unified Payments Interface (UPI) system, which has powered India’s digital payments revolution. According to sources, the government is considering reimposing the Merchant Discount Rate (MDR) on UPI transactions exceeding ₹3,000, while maintaining zero charges for smaller payments.
Why the Change? Banks and Fintechs Struggle with Costs
Since January 2020, the “Zero MDR” policy has ensured that merchants pay no fees on UPI transactions. This move helped India become the world’s top digital payments market, with UPI now accounting for 80% of all retail digital transactions. However, the explosive growth especially in large-value merchant payments, which have hit ₹60 lakh crore since 2020 has left banks and payment service providers struggling with mounting operational costs. Without MDR income, there’s little incentive for these firms to invest in new technology or infrastructure.
Proposed MDR Structure: Only Large Transactions Affected
The Payments Council of India (PCI) has recommended that a 0.3% MDR be levied on large merchants with high turnover, while smaller transactions (up to ₹3,000) remain free. Currently, MDR on credit and debit cards ranges from 0.9% to 2%, but RuPay credit cards will continue to be exempt from these charges for now.
Decision Timeline and Stakeholder Consultation
A high-level meeting involving the Prime Minister’s Office and key finance ministry departments was held recently to discuss UPI’s future and the MDR framework. The government will consult with banks, fintech companies, and the National Payments Corporation of India (NPCI) over the next 12 months before finalizing the new policy.
Balancing Growth and Sustainability
The government’s goal is to maintain UPI’s growth and accessibility for everyday users while ensuring that banks and payment providers can sustain and upgrade the digital payments infrastructure. By introducing a small fee on large transactions, the government hopes to fund ongoing improvements and keep India at the forefront of digital finance.
