UPI MDR Reintroduction Possible Amid Indian Policy Shift

The Indian government has initiated a significant policy discussion by proposing amendments to the Payment and Settlement Systems Act. These changes aim to establish a legal framework for potentially levying merchant charges on digital transactions, including Unified Payments Interface (UPI) payments.

While these amendments do not immediately introduce a Merchant Discount Rate (MDR), they create the legislative possibility for future policy shifts. Authorities are exploring methods to ensure the financial sustainability of India’s rapidly expanding digital payments ecosystem.

Understanding Merchant Discount Rate

Merchant Discount Rate, or MDR, is a fee that merchants pay to payment service providers for processing digital transactions. This charge covers various operational costs incurred by the payment infrastructure.

• Processing and settlement of transactions.
• Fraud management and security measures.
• Maintaining the underlying infrastructure.

Currently, UPI and RuPay debit card transactions operate under a zero-MDR regime, which was implemented in January 2020. This policy aimed to accelerate the adoption of digital payments across the country.

The Sustainability Debate for Digital Payments

The debate surrounding MDR has gained traction due to the unprecedented growth of UPI. Banks and payment companies argue that sustaining the extensive payment infrastructure without a consistent revenue stream is becoming increasingly challenging.

The proposed legislative changes enable future policy adjustments, but the government has not yet finalized specific details regarding MDR implementation. This includes potential rates, applicable merchant categories, or a timeline for introduction.

Proposed MDR Structures Under Discussion

Discussions, as reported, include several proposals for how MDR might be structured. These considerations aim to balance sustainability with minimal impact on smaller businesses and consumers.

• An MDR of 0.3-0.5% for larger merchants.
• This rate would apply to businesses with annual turnovers exceeding Rs 1.5 crore.
• Alternatively, MDR could apply only to transactions above a certain value, with smaller businesses potentially remaining exempt.
• Person-to-person UPI transfers are not currently being considered for MDR.

Industry Concerns and Legislative Path Ahead

Merchants have expressed concerns that the reintroduction of MDR could significantly increase their operational costs. This could potentially lead to higher prices for consumers as businesses pass on the additional expenses.

The legislative process for these amendments must be completed before any MDR can be introduced. Subsequently, separate notifications would be required to detail the specifics of any new MDR policy.