Context:
The Payments Council of India (PCI) has highlighted that the current ₹1,500 crore financial incentive for FY25 covers only a small portion of the ₹10,000 crore annual cost needed to maintain and expand UPI services.
- The incentive outlay has been reduced from ₹3,500 crore in FY24 to ₹1,500 crore in FY25, raising concerns about the financial viability of the ecosystem.
Zero MDR Policy
- The Zero MDR (Merchant Discount Rate) policy, in place since January 2020, has put further pressure on the financial sustainability of digital payment service providers.
- MDR is a fee that merchants pay to payment service providers for each transaction, and its absence removes a critical revenue stream for maintaining and enhancing the payment infrastructure.
Industry Recommendations to the Government
In a letter to Prime Minister Narendra Modi, PCI has proposed:
- Introduction of MDR for RuPay debit cards across all merchants.
- A reasonable MDR of 0.3% for UPI transactions, applicable only to large merchants.
- This structure aligns with existing MDR rates for other payment instruments:
- Credit cards: ~2%
- Non-RuPay debit cards: ~0.9%
Rationale Behind the Proposal
- According to PCI, large merchants (approx. 50 lakh out of 6 crore merchants) are already familiar with MDR on other payment modes and can absorb this nominal charge without disruption.
- Small merchants (90% of digital payment-accepting merchants), defined by RBI as those with turnover below ₹20 lakh per annum, would remain unaffected.
- PCI believes that implementing MDR for large merchants will:
- Ensure sustainable monetisation for service providers.
- Support continued investments in innovation, cybersecurity, merchant onboarding, compliance, and IT infrastructure.
- Prevent disruption at the grassroots level in digital payment adoption.
The PCI has made a clear case for introducing nominal MDR charges for RuPay debit and UPI payments among large merchants to ensure the long-term sustainability of India’s digital payments ecosystem. Without such monetisation mechanisms, maintaining and scaling UPI services amid rising costs will remain a major challenge.
