Seamless digital payments have a price, Pg10

Key Highlights:

• The Taxation and Other Laws (Amendment) Bill, 2026 was passed in the Lok Sabha.
• The Bill proposes amendments to the Payment and Settlement Systems Act, 2007, to allow fees on UPI and RuPay debit card payments.
• The zero MDR policy, implemented in 2020, has rendered the UPI ecosystem financially unsustainable.
• The Standing Committee on Finance highlighted the need for a sustainable revenue model for digital payments.

Detailed Insights:

• The zero MDR policy aimed to promote widespread adoption of digital transactions by making them affordable.
• The digital payments ecosystem incurs substantial costs, with UPI processing 23.6 billion transactions in July alone.
• Government incentives of Rs 8,730 crore (2021-22 to 2024-25) cover only a small fraction (11-14%) of the industry's costs.
• Future MDR charges are expected to apply only above a certain threshold and on a limited set of merchant transactions to minimize impact on most users.
• Person-to-Merchant (P2M) transactions above Rs 2,000, though few in number, account for a significant portion of transaction value.
• A stable revenue stream is essential for investing in infrastructure to handle growing transaction volumes and customer base.
• Reintroducing MDR could attract more players, fostering competition in the currently duopolistic digital payments market.

Key Concepts Involved:

• Merchant Discount Rate (MDR): A fee paid by a merchant to the bank or payment service provider for processing digital transactions.
• Unified Payments Interface (UPI): An instant real-time payment system developed by the National Payments Corporation of India (NPCI) for inter-bank transactions.
• RuPay: An Indian multinational financial services and payment network, launched by the National Payments Corporation of India (NPCI).
• Payment and Settlement Systems Act, 2007: The legislative framework that governs and regulates payment and settlement systems in India.