[Update] Reports Of MDR On UPI Payments Above INR 3,000 Baseless: Govt

Update | June 12, 12:06 AM

Hours after it was reported that the Centre is mulling levying MDR on UPI transactions above INR 3,000, the finance ministry termed the report speculative, baseless and misleading. 

“Speculation and claims that the MDR will be charged on UPI transactions are completely false, baseless, and misleading. Such baseless and sensation-creating speculations cause needless uncertainty, fear and suspicion among our citizens.The Government remains fully committed to promoting digital payments via UPI,” the ministry said in a post on X. 

Original | June 11, 4:20 PM 

In an effort to boost operations of banks and payment service providers across India, the government is reportedly considering levying a merchant discount rate (MDR) on unified payments interface (UPI) transactions above INR 3,000.

An NDTV Profit report said that discussions are underway to impose MDR on the basis of transaction value instead of merchant turnover. 

The report further added that a key meeting was held last week involving the Prime Minister’s Office, department of economic affairs and department of financial services to revisit the MDR framework. 

“While small-ticket UPI payments would likely remain exempt, larger transactions could soon carry a merchant fee, reversing the zero-MDR policy in place since January 2020,” sources told the publication. 

However, the PMO, department of economic affairs, and department of financial services has not released any official statement regarding the matter. 

In the UPI ecosystem, MDR is a fee that banks charge the merchants for processing the payment in real time. Earlier, merchants used to pay an MDR fee amounting to 1% of the total transaction value on card payments. But in 2020, the government waived off MDR charges on RuPay debit cards to promote digital payments in the country.

In March, Indian banks submitted a proposal to the Centre to reintroduce the MDR on UPI and RuPay debit card transactions. Later in the month, the Payments Council of India (PCI) also wrote to the Prime Minister, seeking an urgent reconsideration of the zero MDR policy for the UPI and RuPay debit card transactions.

PCI represents the country’s digital payment players like Airtel Payments Bank, Amazon Pay, Google Pay, Cashfree and Jio Payments Bank, among others.

Why Fintech’s Are Calling For MDR 

According to a report by Inc42, third party application providers (TPAP) have raised the concern of rising cost of facilitating high value UPI transactions. Over the years, platforms like PhonePe, Paytm and Google Pay, among others, have invested a hefty amount of capital to upgrade their UPI tech stack. But still in the past year, the country has seen outages in UPI transactions on various occasions. 

“…The timing now seems right because the government has completed its initial digitisation and UPI groundwork. Now, the focus is on making the system sustainable while ensuring quality for those supporting it…,” Rohit Taneja, founder and chief executive of Decentro, told Inc42 in an earlier interaction. 

To sum up, the zero-MDR policy has resulted in loss of revenue for fintech players, TPAPs and bankers and now they want to build a sustainable business model. 

However, Paytm founder Vijay Shekhar Sharma, earlier this year said that while the reintroduction of MDR fee will result in raining revenues for digital payment providers, it will also result in increased competition. 

As per National Payments Corporation of India (NPCI) data, UPI transaction volume touched a fresh all time high in the month of May, growing 4.4% to 18.68 Bn from 17.89 Bn in the previous month. While the UPI transaction value accounted for INR 25.14 Lakh Cr, up 5% from INR 23.95 Lakh Cr in April.