The Indian government will reintroduce Merchant Discount Rate (MDR) for UPI transactions. This undoes the zero-MDR policy from 2020 and primarily benefits banks, not directly the UPI apps like PhonePe or Google Pay. Merchants will again pay a "UPI tax" determined by a new government notification.
How We Got Here
MDR on UPI and RuPay debit cards has been zero since January 2020, following an amendment to Section 10A of the Payment and Settlement Systems Act. The government now plans to amend the same section again, enabling merchants to be charged for UPI transactions.
The Numbers
- MDR gets split across the buyer's bank, merchant's bank, their respective partner banks, and then the UPI apps or payment gateways.
- An industry executive predicts the buyer's bank will receive the largest MDR share, followed by the merchant's bank.
- UPI apps already earn revenue share and switching fees even with zero MDR, making the new MDR an incremental gain for them.
What Happens Next
🇮🇳 Why This Matters for India
For the 6.5 crore kirana store owners in Tier-2 cities like Nashik and Kochi, even a small MDR could significantly impact their daily transaction margins.
The Take
The popular narrative that PhonePe and Google Pay are the primary winners here misses the mark. Banks stand to gain the largest chunks of this new revenue, as their risk and role scale with transaction value.
Source:
MediaNama ↗