RBI Governor Sanjay Malhotra stated that discussions on UPI MDR are "very premature," despite the government tabling an amendment to enable the charge. This creates direct tension between the Centre's push to monetise UPI and the central bank's cautious approach to public digital infrastructure costs. The outcome will determine whether payment providers finally get a revenue stream or if consumers indirectly bear costs.
How We Got Here
Merchant Discount Rate (MDR) on Person-to-Merchant (P2M) UPI transactions was zeroed out on January 1, 2020, under Section 10A of the Payment and Settlement Systems Act (PSSA), 2007. The Union government recently proposed amending the PSSA to allow it to directly notify which electronic payments remain MDR-exempt.
The Numbers
- The proposed MDR would range from 0.25% to 0.4% on P2M UPI transactions above ₹2,000.
- Person-to-person (P2P) transactions are expected to remain exempt from any new MDR.
- Brokerage firm Jefferies estimates a 15-30 basis point MDR on such transactions could generate ₹5,000-₹10,000 Cr in revenue by FY28.
- The Confederation of All India Traders (CAIT) supported a "nominal MDR" on higher-value UPI transactions, echoing earlier calls from the Payments Council of India for a 0.3% MDR.
- MDR previously existed on UPI between April 2016 and January 1, 2020, before the zero-fee mandate.
What Happens Next
🇮🇳 Why This Matters for India
For the millions of small merchants in Tier-2 cities like Lucknow and Jaipur, any new MDR would introduce direct transaction costs, impacting their already slim operational margins.
The Take
The government's amendment will likely pass, enabling future MDR, but the RBI will ensure a phased, minimal impact rollout. Don't expect widespread merchant costs for at least another 12 months.
Source:
Inc42 ↗