The Indian government is mulling the possibility of the Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions above ₹2,000 and could be returned in this direction, which will be very beneficial for merchants, digital payment platforms and end users of payments in India.
No decision has been taken but discussions about bringing back MDR as part of the rapidly growing digital payments ecosystem in India are in the discussion.
UPI has revolutionized payments in India since its launch in 2016. The platform, developed by National Payments Corporation of India (NPCI), enables instant bank-to-bank transfers and has become the country’s preferred mode of digital payment.
In 2020, MDR on UPI and RuPay debit card transactions was removed to promote a broader digital adoption and UPI payments made available to consumers and merchants.
But payment service providers and banks have long contended that maintaining a zero-MDR system is financially unfeasible. Processing millions of digital transactions comes with high costs in technology, cybersecurity, infrastructure, customer support and fraud prevention, among others. Without MDR, many industry players say they struggle to recover operational costs.
According to reports, policymakers are considering MDR only for high-value UPI transactions above ₹2,000. Such a move would affect merchants rather than consumers, but businesses may eventually include the cost of such fees in product pricing. Industry sustainability and convenience are also under debate, and officials are also considering other strategies.
The proposal has had mixed responses. Supporters believe that allowing a modest MDR would enable payment firms to continue investing in secure and reliable digital payment infrastructure. Banks argued that transaction processing costs need to be compensated in order to maintain service quality.
On the other hand, consumer groups and small business owners fear that any additional fee might deter digital transactions, especially among small retailers who have adopted UPI for its zero-cost model. And experts fear that the introduction of transaction fees would slow India’s digital payment drive and drive the majority of its users to cash transactions.
The government has always promoted Digital India and cashless payments with initiatives such as QR code adoption, small merchant digitization and financial inclusion.
Whatever decision on MDR should be considered on its impact on consumers, merchants, fintech companies and banks and will be implemented in a time-sensitive manner.
Industry representatives note that many countries charge small merchant service fees on digital payments, making India’s zero-MDR model relatively unique. If such an MDR is adopted, small merchants and low-value transactions will be exempted.
No official announcement about a date or fee structure has been made till now. The government is expected to consult the banks, financial firms, merchant associations and RBI before making a final decision.
Until an official announcement is made, UPI payments will remain free for users. Companies and consumers should follow official government notifications as opposed to speculations on the internet.
