Context:
India’s fintech industry is exploring a proposal to introduce a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions—but only for large merchants, while ensuring that end users and small merchants remain unaffected, sources familiar with the policy discussions have said.
Current Government Position
- The Ministry of Finance recently reaffirmed via a post on social media that it has no current plans to levy MDR on UPI payments.
What is Merchant Discount Rate (MDR)?
The Merchant Discount Rate (MDR) is a fee that merchants pay to banks or payment processors for processing debit and credit card transactions. This fee covers the cost of the infrastructure and services required to handle digital payments. The MDR is typically a percentage of the transaction amount, and it varies based on factors like the payment method, transaction volume, and merchant type.
Key Features of the Proposal
- MDR limited to large merchants: Only large-scale enterprises, such as e-commerce platforms and high-turnover businesses, would be subject to the proposed MDR.
- Small merchants and users protected: The proposal seeks to exempt over 90% of India’s 60 million UPI-accepting merchants, particularly those with annual turnovers of ₹20 lakh or less.
- End users unaffected: Customers will continue to pay zero fees on UPI transactions, regardless of the proposed changes.
Impact of MDR on UPI
- Promoting Digital Payments: MDR was made zero for RuPay debit cards and BHIM-UPI transactions to encourage their adoption.
- Supporting the Ecosystem: An incentive scheme has been implemented to support payment system participants in delivering services for low-value UPI transactions.
- Maintaining Cost-Effectiveness: Keeping UPI free ensures its continued use and avoids burdening merchants with additional charges.
