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India Weighs UPI Merchant Fee for High-Value Transactions
The government is examining a tiered MDR on high-value UPI payments to fund the digital payments ecosystem. Small merchants and P2P transfers would remain free. The threshold and rate are yet to be decided.
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The government is considering bringing back a Merchant Discount Rate (MDR) on a narrow category of high-value UPI transactions. The move follows a recommendation from a Parliamentary Standing Committee on Finance, which called for a self-reliant revenue model to fund India's expanding digital payments system.
The committee proposed a calibrated, tiered MDR framework for larger merchant payments while keeping person-to-person transfers and small merchants free. The government has not yet settled on a transaction threshold or the rate itself, according to a PTI report.
MDR is a fee that merchants pay to accept certain digital payments. The fee is shared among banks, payment service providers and infrastructure companies. UPI operated under a small MDR until January 2020, when the government set a zero-MDR regime to push digital adoption and reduce cash use. Since then, merchants have paid nothing for UPI payments, though the banks and payment companies that process them still carry costs.
The core problem is the gap between what the government allocates and what the industry spends. The centre has set aside Rs 2,000 crore to subsidise RuPay debit cards and low-value BHIM-UPI transactions. The Parliamentary panel said the industry's estimated operating cost is about Rs 20,700 crore. The committee warned that relying on inadequate subsidies could force payment companies to cut back on cybersecurity, fraud prevention and network infrastructure.