- RBI Governor Sanjay Malhotra said MDR fees won't impact UPI transaction volumes
- From Oct 15, a 0.4% MDR applies to select UPI merchant transactions over Rs 2,000
- UPI transactions slightly declined 1.8% in September after August's record high
Brushing off concerns related to the impact of merchant charges on Unified Payments Interface (UPI) transactions, Reserve Bank of India (RBI) Governor Sanjay Malhotra told the press that the upcoming levies won't derail the momentum of digital payments.
"MDR decision has already been taken. As of now, we do not see any drop in volumes. I don't personally think a small fee will have any impact on UPI volumes," Malhotra said, in response to a media query following the conclusion of the central bank's Monetary Policy Committee meeting.
The RBI governor's remarks come about a week before the new payment framework related to UPI transactions goes live. From Oct. 15 onwards, a Merchant Discount Rate (MDR) of 0.4% will apply to select person-to-merchant UPI transactions exceeding Rs 2,000.
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The fee, which is capped at Rs 300 for high-value purchases, will be absorbed entirely by eligible merchants. Retail consumers will not face any out-of-pocket costs, and everyday payments below the Rs 2,000 threshold, along with peer-to-peer transfers, will remain completely free, the government has clarified.
However, even before the new UPI MDR framework gets rolled out, a mild sequential cooling in UPI activity was recorded last month. According to the National Payments Corporation of India, the number of transactions came in at 24.07 billion trades in September. This represents a 1.8% moderation from the historic high of 24.51 billion transactions recorded in August. The overall monetary value of these payments also edged lower on a month-on-month basis, settling at Rs 29.37 lakh crore, as against Rs 29.82 lakh crore in August.
Malhotra's briefing followed a resolute monetary policy decision by the central bank. Earlier in the day, the Monetary Policy Committee unanimously voted to raise the benchmark repo rate by 25 basis points to 5.50%. Citing sticky inflation and global crude oil volatility, the RBI firmly ruled out near-term rate cuts and officially shifted its policy stance to "calibrated tightening."
On Sept. 25, NDTV Profit learnt from sources that the government will ask Indian Banks' Association to devise a mechanism to ensure that merchant discount rate charge of 0.4% is not passed on to consumers.
Notably, the 0.4% MDR is distributed among various players in the UPI payment ecosystem. Out the total charge, 40% goes to the issuing bank, or the customer's bank, while 30% goes to the merchant acquirer, which could be the merchant's bank or payment gateway. Another 20% goes to the UPI app or Third-Party TPAP, while the remaining 10% goes to the payer PSP bank. The government receives no share of this levy, the sources had noted.
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