Amazon Pay India CEO Bats For MDR Regime For UPI Payments

Amazon Pay India CEO Vikas Bansal has called for the implementation of the merchant discount rate (MDR) regime for Unified Payments Interface (UPI) transactions.

As per Economic Times, Bansal said that “some sort” of MDR for UPI payments is essential for smaller players to “receive a fair share for the value they add to the payment ecosystem”.

“We have been advocating for a fair value exchange between merchants and consumers or customers and banks, and we are also advocating that some sort of MDR should exist (for UPI transactions)… It already exists for credit cards on UPI or credit lines on UPI. But it should also come up for bank accounts, so that everybody gets to have a little bit of share for the value they add in the ecosystem,” added Bansal. 

The Amazon Pay India CEO, however, called for a “fair and equitable” MDR regime to avoid hindering the adoption of digital payments.

For the uninitiated, MDR refers to the charges paid by merchants to issuers, acquirers and merchant aggregators. While UPI payments are currently exempted from MDR, credit cards attract the highest MDR between 1%-2% of the total transaction amount.

However, Amazon Pay is not the first fintech player to pitch for MDR for UPI payments. Last year, Payments Council of India (PCI) chairman Vishwas Patel sought about INR 8,000 Cr towards MDR support for UPI and RuPay debit card transactions for the fiscal year 2023-24 (FY24).

The clamour is not without reason. Fintech startups have no way to monetise UPI payments despite spending heavily on infrastructure required to sustain such online payments.  

In a report, titled “Payments Vision 2025”, released in 2022, the Reserve Bank of India (RBI) argued that the payments ecosystem was bearing the cost of facilitating payments, which was proving to be a deterrent to the growth of the digital payments space. 

As a result, the union government earmarked incentives worth INR 1,441 Cr for the promotion of digital payments during the fiscal year 2023-24 (FY24). These comprised only RuPay debit cards and low-value person to merchant (P2M) BHIM-UPI transactions. The Centre had set aside INR 2,600 Cr for the same purpose in FY23. 

On the other hand, attempts to introduce MDR have been met with heavy criticism. In 2022, the RBI released a discussion paper proposing a slab-wise charge structure for UPI payments. However, it faced widespread criticism. 

Following this, the government issued a clarification saying it was not the right time to make UPI transactions chargeable. 

That said, UPI continues to see rapid adoption across the board. In June 2024, the number of UPI transactions soared 49% year-on-year (YoY) to 1,389 Cr even as the number declined marginally by 1% month-on-month (MoM). 

Overall, UPI parent National Payments Corporation of India (NPCI) plans to reach the target of 10,000 Cr monthly transactions on the network in the near future.