Modi Govt Mulls MDR Charges on UPI As Small-Ticket Payments Surge

Prime Minister Narendra Modi’s government is considering reinstating merchant charges, also known as the Merchant Discount Rate (MDR), on certain Unified Payments Interface (UPI)-based transactions and RuPay-powered debit cards after strong lobbying efforts by banks and fintech firms.

According to an Economic Times report citing bankers, the proposal was sent by lenders and aims to impose MDR on merchants whose GST-based annual turnover exceeds Rs 40 lakh.

MDR is a fee merchants pay to banks and payment service providers like Razorpay for processing transactions. While UPI payments currently have no MDR, debit card transactions typically incur a 0.75% fee, while credit card transactions are charged around 1.75% per transaction.

The industry has long demanded the reintroduction of this charge on NPCI-operated UPI, as the fee covers the costs banks and fintech firms incur for technology, personnel, infrastructure, and data centres. With the rise in small-ticket payments by hawkers and traders, these transactions are becoming costlier for companies.

Fintech Firms Lobby RBI Governor

According to Moneycontrol, fintech firms raised the issue for the first time in a meeting with the Reserve Bank of India's (RBI) new governor, Sanjay Malhotra, and government officials on March 5.

The report noted that the banking regulator acknowledged that the zero MDR policy had contributed to the exponential growth of the UPI platform.

According to the Moneycontrol report in January, 86% of merchant payments were below Rs 500, up from 59% in 2022. While the government subsidises banks and fintech firms to process these transactions for free, industry insiders argue that the subsidy falls short of covering infrastructure costs.

As per the bankers, the logic is that if large merchants using card machines already pay MDR on other payment methods like Visa and Mastercard debit cards, as well as all types of credit cards, then why shouldn't they also pay charges for UPI and RuPay debit cards?