UPI Payments May See MDR Return At 25-30 Bps

The merchant discount rate (MDR) on UPI transactions may soon be reintroduced, with discussions suggesting a charge of 25-30 basis points for select categories of payments. This charge would apply to high-value UPI transactions and payments made by large commercial entities.

The exact transaction value thresholds and categories eligible for the charge are still being worked out. The final MDR structure is expected to depend on exemptions decided by the government. MDR refers to the fee paid by merchants to banks and payment service providers for facilitating digital transactions.

Before 2020, UPI transactions carried an MDR of around 30 basis points. However, the government introduced a zero-MDR policy to encourage wider adoption of digital payments and accelerate the growth of UPI across the country. Unlike UPI, other payment methods such as debit and credit cards already involve MDR charges.

The proposed MDR is likely to be limited to high-value UPI transactions, with a possible threshold of ₹2,000 for large merchants. Industry estimates suggest that imposing a 25 basis point MDR on merchant transactions above this threshold could generate nearly ₹13,000 crore in annual revenue.

The discussions gained momentum after the government introduced a Bill in Parliament on August 3 seeking amendments to provisions that prevented banks and payment companies from charging fees on certain digital transactions. Although the Bill does not directly mention restoring MDR on UPI payments, sources indicated that bringing back MDR is among the possible implications of the proposed changes.

The move is being considered as stakeholders evaluate ways to support the digital payments ecosystem while maintaining UPI’s rapid growth and accessibility. A 25 basis point MDR would translate into a charge of 25 paise for every ₹100 transaction, or ₹25 on a payment of ₹10,000.

The final rate and implementation framework are still under discussion and may change before a decision is finalized. The charge applies to merchant payments and is not expected to be imposed directly on consumers using UPI.

The proposed reintroduction of MDR on UPI transactions is a significant development in the digital payments space. It could have implications for merchants, banks, and payment service providers, and may impact the growth of UPI in the country.

In the context of the Indian digital payments ecosystem, the reintroduction of MDR on UPI transactions is a complex issue. On one hand, it could generate significant revenue for banks and payment service providers. On the other hand, it could increase the cost of digital transactions for merchants and potentially impact the growth of UPI.

Overall, the proposed reintroduction of MDR on UPI transactions is a significant development that could have far-reaching implications for the digital payments ecosystem in India. It is likely to be watched closely by stakeholders, including merchants, banks, and payment service providers, as well as consumers who use UPI for digital transactions.

The significance of this development lies in its potential impact on the growth of UPI and the digital payments ecosystem in India. As the country continues to move towards a digital economy, the role of UPI and other digital payment methods is likely to become increasingly important. The reintroduction of MDR on UPI transactions could be a key factor in shaping the future of digital payments in India.

In conclusion, the proposed reintroduction of MDR on UPI transactions is a complex issue with significant implications for the digital payments ecosystem in India. While it could generate revenue for banks and payment service providers, it could also increase the cost of digital transactions for merchants and potentially impact the growth of UPI. As the discussion continues, it is likely to be watched closely by stakeholders and consumers alike.