The government is considering a policy change that may reintroduce Merchant Discount Rate on Unified Payments Interface transactions above Rs 3,000, in a move aimed to support banks and payment service providers in managing infrastructure and operational costs, according to people familiar with the matter.
The discussions are underway to allow MDR based on transaction value rather than merchant turnover, the people said.
“While small-ticket UPI payments would likely remain exempt, larger transactions could soon carry a merchant fee, reversing the zero-MDR policy in place since January 2020,” a source told NDTV Profit.
A key meeting was held last week involving the Prime Minister's Office, Department of Economic Affairs, and Department of Financial Services to assess the MDR framework.
Why Now?
Banks and payment service providers have raised concerns about the rising cost of handling high-value digital transactions. UPI now accounts for nearly 80% of all retail digital transactions. However, the zero-MDR regime has limited incentives for further investment in the sector.
The value of UPI person-to-merchant transactions has reached Rs 60 lakh crore since 2020. This growth reflects deep market penetration and high consumer trust, particularly in large transactions where service providers bear higher costs.
The Payments Council of India has proposed a 0.3% MDR on large merchants for UPI transactions. Currently, MDR on credit and debit card payments ranges from 0.9% to 2%, excluding RuPay.
“RuPay credit cards are expected to remain outside the MDR scope for now, source added.
A decision is likely in one to two months following consultations with stakeholders, including banks, fintech firms, and the National Payments Corporation of India.
If implemented, the policy would mark a shift from incentivising UPI adoption to ensuring long-term sustainability of the digital payments ecosystem.
The Finance Ministry, however, clarified later on Wednesday that the government is not considering imposing merchant discount rates on UPI payments, reaffirming its commitment to low-cost digital transactions.
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