Payments Body Writes To PMO For Merchant Discount Rate On UPI, RuPay Debit

The Payments Council of India wrote to the Prime Minister's Office on Monday, seeking an imposition of merchant discount rate on Unified Payments Interface and RuPay debit-card transactions, a move which will be against the Union government's current zero MDR stance.

The industry body, which represents 180 non-banking payment industry players like Google Pay, PhonePe and Paytm, claimed that there were "pressing financial sustainability concerns" facing the digital payments ecosystem due to the continued zero MDR policy, which has been in effect since January 2020.

While the government has provided financial incentives to offset some of the ecosystem's operational costs, the letter pointed out that the Rs 1,500-crore allocation covered only a fraction of the estimated Rs 10,000 crore annual cost required to maintain and expand the UPI services.

The industry body proposed the introduction of an MDR for RuPay debit cards for all merchants and a reasonable MDR of 0.3% for the UPI only for large merchants.

Existing MDR structures for other digital payment instruments like credit cards is at approximately 2% and non-RuPay debit cards are at about 0.9%.

The PCI also told the government that introduction of nominal MDR would not result in "any operational disruption, even in the short term, as these merchants were already accustomed to MDR on other payment modes".

The MDR imposition will not affect about 90% of the six crore merchants that accept digital payments, since they are categorised as small merchants. Only about 50 lakh merchants categorized as large enterprises will be impacted, according to the PCI.

"MDR is the lifeline of the digital payments ecosystem. Without it, the sustainability of the entire infrastructure is at risk. The introduction of a reasonable MDR for large merchant transactions will allow the industry to continue investing in innovation, cybersecurity, grievance redressal and merchant support," it added. 

The debate around whether the UPI payments should be free has been longstanding. While the industry demands either greater financial allocation or an MDR, the government's support for UPI person-to-merchant transactions has come down. In the current budget, the government has allocated Rs 1,500 crore, only a notch above the Rs 1,441-crore in the previous allotment, which was a 42% year-on-year drop.

The government views the UPI as a social good, a way of getting more and more people onboard the digital payments bandwagon. The way postcards, inland letters and even railways are heavily subsidised today, the digital pipeline of the Indian banking sector is being seen as a social good.