Par Panel For Expeditious Introduction Of Calibrated MDR On High-Value Transactions

A Parliamentary Panel has recommended expeditious introduction of a calibrated Merchant Discount Rate (MDR) on high-value transactions to ensure the financial sustainability of the payments ecosystem and reduce the burden on the exchequer.

The Standing Committee on Finance, in its report tabled on Wednesday, also recommended that the Department of Financial Services, under the Ministry of Finance, enforce stringent monitoring to prevent idle parking of funds under the Pradhan Mantri Vaya Vandana Yojana (PMVVY) and the Atal Pension Yojana (APY), while evaluating the long-term financial sustainability of defined-benefit and incentive schemes.

Regarding the incentive scheme for the promotion of RuPay Debit Cards and low-value BHIM-UPI transactions, the Committee expressed concern that providing a ₹2,000 crore budgetary allocation to offset zero-MDR losses needlessly inflates the Department's overall Demand for Grants, while covering only about 10% of actual operational costs.

The Committee had, therefore, recommended that the Department explore a self-reliant, tiered revenue mechanism to ensure financial sustainability without perpetually straining the exchequer.

The report stated that, in pursuance of their earlier recommendation emphasising the importance of a viable revenue model, enabling legislative provisions for a tiered MDR structure were brought forward.

However, the Committee headed by senior BJP leader Bhartruhari Mahtab expressed concern over the staggering mismatch between the ₹2,000 crore allocation and the industry's estimated operational cost of ₹20,700 crore.

While statutory enablement now exists to permit calibrated MDR on high-value transactions, any delay in notifying and operationalising this framework leaves payment service providers heavily dependent on inadequate subsidies, thereby threatening critical investments in cybersecurity, fraud prevention, and network infrastructure, the report said.

"The Committee, therefore, reiterates the recommendation to expedite the implementation of a self-reliant, tiered revenue framework for higher-value merchant transactions while safeguarding small merchants and P2P transfers, thereby transitioning the digital payments ecosystem to a self-sustaining model," the report said.

Earlier this week, Parliament passed a Bill to amend the Payment and Settlement Systems Act, 2007, that authorises the government to permit banks and other service providers to levy charges on payments through Unified Payments Interface (UPI) and other notified electronic payment modes.

The amendments approved by Parliament seek to remove the existing legal provision that prevents banks and payment service providers from charging MDR on notified electronic payment modes.

The government's approach aims to levy a small charge on digital payment services for consumers and small businesses while ensuring a sustainable revenue model for banks, payment service providers (PSPs), and payment infrastructure firms that drive the digital payments ecosystem.

The Bill seeks to make changes in Section 10A of the Payment and Settlement Systems Act, 2007, which prohibits banks and system providers from imposing any charges on electronic payments, and Section 269SU of the Income Tax Act requires large businesses with a turnover exceeding ₹50 crore to accept payments through specific electronic modes, including RuPay debit cards and BHIM-UPI QR codes.