Govt May Impose MDR on UPI Payments Over INR 3,000 to Cut Banking Strain

The government is allegedly considering a plan to reinstate the Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions over INR 3,000 in an effort to relieve financial strain on banks and payment service providers.

As per various media reports, the action is intended to address the operational and infrastructure expenses associated with high-value digital payments.

In order to distinguish high-value payments from low-value ones, current debates propose a change from the current framework by tying MDR to transaction value as opposed to merchant turnover.

The zero-MDR framework that has been in effect since January 2020 may come to an end as a result of this modification.

 According to a media report, larger transactions may soon be subject to a merchant charge, reverting the zero-MDR policy that has been in effect since January 2020, even if small-ticket UPI payments will probably continue to be free.

From Zero to Generating Revenue Though MDR

In India, UPI currently controls about 80% of all retail digital transactions. However, banks and payment providers have voiced worries about sustainability and escalating costs since the zero-MDR regime does not produce any money from high-value transactions.

Many people think that the lack of MDR has tempered interest in making additional investments in digital infrastructure.

According to a media article, the Payments Council of India has responded by recommending a 0.3% MDR on big merchants for UPI transactions in order to support the upkeep and expansion of the digital payments ecosystem.

RuPay Will Continue to Enjoy the Benefits

RuPay cards are mostly not included in the current MDR price system, which ranges from 0.9% to 2% for debit and credit card transactions. If the new MDR structure is put into place, RuPay credit cards might still be excluded.

For the time being, RuPay credit cards are anticipated to continue to be excluded from the Merchant Discount Rate. After speaking with important parties, including banks, fintech firms, and the National Payments Corporation of India (NPCI), government representatives said a final decision might be made in one to two months.

The report also stated that if the change were to be put into effect, it would signify a strategic pivot from encouraging broad use to guaranteeing the financial viability of India's digital payment systems.

This is the most recent turn of events; earlier this year, the Payment Council of India had prompted the government of Prime Minister Narendra Modi to reevaluate its Zero MDR policy on UPI transactions.

A media outlet last week had predicted that the digital payments network will soon surpass the daily transaction volume of the multinational payments giant Visa, making it the world's largest retail interbank payment settlement platform.

UPI had 644 million transactions as of June 1 and 650 million the following day. In FY24, Visa handled an average of 639 million transactions every day.