'UPI's growth needs money, small payments won't face MDR', Pg17

Key Highlights:

• A potential Merchant Discount Rate (MDR) on UPI transactions may apply only to a small fraction of payments, primarily large transactions.
• Over 95% of UPI transactions, especially small-value payments at places like kirana stores, are expected to remain free of MDR.
• The government introduced The Taxation and Other Laws (Amendment) Bill, 2026, which allows for charging fees on UPI and RuPay debit card payments.
• The National Payments Corporation of India (NPCI)'s UPI and Services Steering Committee is yet to make a final decision on the MDR.

UPI MDR.jpg

Detailed Insights:

• The proposed MDR aims to generate funds for UPI's growth and infrastructure development, reducing reliance on public funds.
• In 2025-26, only 4% of person-to-merchant (P2M) UPI payments exceeded Rs 2,000, but these accounted for two-thirds of the total transaction value.
• MDR is a fee levied on merchants by banks to cover transaction processing, settlement, and infrastructure costs, not directly on consumers.
• Since 2020, the government has subsidized UPI and RuPay debit card payments up to Rs 2,000, with subsidies totaling Rs 8,730 crore from 2021-22 to 2024-25.
• The Payments Council of India (PCI) clarified that small merchants are not charged for accepting UPI payments and consumers do not pay a fee.
• UPI transactions have seen massive growth, with over 24,000 crore transactions worth Rs 314 lakh crore in 2025-26, leading to significant operational costs for the industry.

Key Concepts Involved:

• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI facilitating inter-bank peer-to-peer and person-to-merchant transactions.
• Merchant Discount Rate (MDR): A fee charged to a merchant by a bank for processing debit or credit card transactions.
• Payment and Settlement Systems Act, 2007: An Indian law that provides for the regulation and supervision of payment systems in India.
• National Payments Corporation of India (NPCI): An umbrella organization for operating retail payments and settlement systems in India, promoted by the Reserve Bank of India.