UPI Linked RuPay Credit Cards Likely To Have 2% MDR

National Payments Corporation of India (NPCI) and banks have worked out the merchant discount rate (MDR) on credit card transactions on the RuPay-Unified Payments Interface (UPI).

According to a Business Standard report, NPCI will go with a 2% merchant discount rate (MDR) for RuPay credit cards on UPI as well, as is the case with all other credit cards. Around 1.5% will go to the issuing bank and 0.5% will be shared by the acquiring entity and RuPay of the 2% MDR to be charged.

The reports come as the NPCI and banks are ready to start linking credit cards with UPI. According to NPCI CEO Dilip Asbe, the linking will start in the next two months, as the payments body is in talks with several banks for the same.

The move to link credit cards with UPI was first proposed by the Reserve Bank of India (RBI) in the ‘Statement on Developmental and Regulatory Policies’, in early June this year.

For the uninitiated, MDR is a fee paid by merchants to banks for processing payments. It is calculated as a percentage of the transaction and forms the basis of the business of credit card companies and banks.

MDR for all debit card payments is capped at 0.9% of the transaction value. While there is no such cap on credit card payments, non-RuPay credit cards attract up to 2% MDR and non-RuPay debit cards attract 0.5% MDR.

So far, there was no MDR on RuPay debit card payments. And RuPay credit cards generally had lesser MDR than non-RuPay ones. However, the recent move looks set to bring parity to the credit cards linked with UPI by charging similar MDR across all types of credit cards.

Recently, there has been renewed interest in MDR and the feasibility of zero MDR has been called into question by several corridors of the industry. RBI, in the recently-launched ‘Payments Vision 2025’, laid focus on MDR for digital transactions in the country.

The RBI pointed out that the cost of facilitating payments is borne by the payments ecosystem, which is a deterrent to the growth of the same.

However, the RBI’s document also mentioned that while collecting charges is important to preserve the viability of online payments, the charges need to be reasonable and not act as a deterrent to the adoption of digital payments.

Around the same time as RBI’s document was released, the Parliamentary Standing Committee on Commerce presented a report in Rajya Sabha, calling for a reassessment of the zero MDR policy.

With the UPI transactions regularly cracking more than half a trillion transactions a month, an increasing number of transactions will result in more costs for the payments ecosystems to bear in the absence of MDR.

Even credit card transactions are on the rise in the country, as proliferation increases. According to a Goldman Sachs report, credit card transaction volume reached $130 Bn in FY22. The same is expected to grow at a CAGR of 22% to reach $285 Bn by the end of FY26 without any linking with UPI.

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