Govt Introduces 0.4% MDR On Large UPI Payments

The government has introduced a 0.4% Merchant Discount Rate (MDR) on UPI payments above ₹2,000 to merchants. This move ends the zero-MDR regime that was in place since January 2020. The new fee framework aims to drive digital payments adoption while addressing concerns of banks and fintech companies.

The MDR on person-to-merchant (P2M) UPI transactions above ₹2,000 has been capped at ₹300 for payments of ₹75,000 and above. Essential sectors like railways, telecom, and fuel will have a flat ₹5 fee per transaction, while capital markets will have a lighter 0.02% rate.

Small merchants earning up to ₹1 lakh a month via UPI QR codes will remain fully exempt from the new charge. According to the government, this exemption will shield 96% of merchant transactions from any new charge.

Person-to-person transfers, which account for 37% of UPI's volume and 70% of its value, will remain untouched. App providers are barred from adding platform fees, and banks have been told not to let merchants pass MDR costs to customers.

A fifth of the new fee pool will be used to fund the expansion of UPI services for small merchants. This move is expected to promote digital payments while ensuring that small merchants are not burdened with excessive fees.

The introduction of the MDR on large UPI payments is a significant development in the digital payments landscape. It is expected to have a positive impact on the growth of digital payments in the country.

The government's decision to cap the fee at ₹300 for large payments is seen as a measure to prevent excessive fees from being levied on merchants. The exemption for small merchants is also expected to promote the use of digital payments among small businesses.

Overall, the new fee framework for UPI payments is a step towards promoting digital payments while ensuring that the costs are reasonable and do not burden merchants or customers.

The impact of this move will be closely watched by the industry and consumers alike. It is expected to have a significant impact on the growth of digital payments in the country and will be an important factor in shaping the future of the payments landscape.

In conclusion, the introduction of the MDR on large UPI payments is a significant development that is expected to promote digital payments while ensuring that the costs are reasonable. The exemption for small merchants and the capping of fees at ₹300 for large payments are positive measures that will help to drive the growth of digital payments in the country.