- India's IIT Bombay report urges redesign of UPI charges for balance and trust
- Recommend limiting merchant discount rates to large businesses only
- Propose excluding loan repayments and debt collections from MDR fees
India's proposed charges on select Unified Payments Interface transactions need to be redesigned to balance revenue generation with affordability and public confidence, an IIT Bombay report has said.
The report recommended limiting merchant discount rate charges primarily to large businesses while keeping loan repayments and debt collections outside the fee framework.
The report, titled UPI at a Crossroads: Reintroducing the MDR, warned that imposing charges without adequate safeguards could weaken trust in a digital payment system that has delivered convenience to users and productivity gains across the economy.
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It argued that UPI's broader economic benefits outweigh the incremental revenue that merchant transaction fees could generate, making the design of any charging mechanism crucial to its long-term adoption.
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Large merchants should bear most UPI charges
The report suggested focusing remuneration on merchants with annual turnover of Rs 50 crore or more, which are legally required to offer UPI as a payment option.
Restricting charges to this segment could account for about 90% of the revenue proposed under the National Payments Corporation of India's framework, it said.
It also proposed a reasonable fee on online person-to-merchant transactions, particularly for e-commerce businesses, where digital payments are central to completing purchases.
Such charges could compensate banks and other UPI ecosystem participants without placing a broad burden on users and smaller merchants.
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Loan repayments should remain outside MDR
The report recommended exempting debt collection and loan EMI repayments from MDR, even when transactions exceed Rs 2,000. Keeping these payments free, it said, would support financial inclusion and prevent additional costs for borrowers making digital repayments.
The recommendations come after NPCI's September 15 circular introduced a 0.4% MDR on specified merchant UPI transactions above Rs 2,000, payable by merchants and capped at Rs 300 for transactions of Rs 75,000 or more.
Railways, telecom, fuel and insurance payments attract a flat Rs 5 charge above the threshold, while capital-market transactions carry a lower 0.02% rate, also capped at Rs 300.
Payments between individuals and most everyday merchant transactions remain free under the framework.
The report also called for the Reserve Bank of India to determine UPI MDR within the provisions of the Payment and Settlement Systems Act, 2007.
(With PTI inputs)
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