New Delhi, Aug 5: India’s digital payment ecosystem may see a major change as discussions continue around introducing a Merchant Discount Rate (MDR) on UPI transactions, with analysts suggesting that the proposed charge is likely to be paid by merchants rather than customers.
According to analysts, if introduced, the merchant-funded UPI MDR could be in the range of 30-40 basis points. The move is expected to help create a more sustainable financial model for banks and payment companies while allowing consumers to continue using UPI services without additional charges.
What is the New UPI Rule?
Currently, most UPI transactions are available to users at no additional cost, especially for everyday payments. Under the proposed framework, a small processing fee or MDR may be charged to merchants for accepting UPI payments, similar to charges applied in some other digital payment systems.
The fee would be collected from businesses, including merchants and service providers, instead of being directly charged to customers making payments.
How Will It Work?
Under the possible new system:
- A customer can continue making UPI payments as usual.
- The merchant accepting the payment may pay a small percentage-based fee to payment service providers.
- Banks and digital payment companies may receive revenue support for maintaining payment infrastructure.
- The government and regulators would decide the final structure, rates, and implementation process.
Why Is This Change Being Considered?
UPI has transformed India’s payment landscape, enabling millions of instant digital transactions every day. However, banks and payment companies have highlighted the need for a sustainable revenue model to support technology upgrades, cybersecurity, and payment infrastructure.
Analysts believe a merchant-funded MDR model could strengthen the digital payments ecosystem while protecting consumers from additional costs.
Impact on India’s Digital Economy
A financially stronger UPI ecosystem could support the continued growth of digital commerce, small businesses, and financial inclusion. Reliable payment infrastructure is becoming increasingly important as more businesses move towards online transactions.
Experts believe that maintaining a balance between merchant costs, consumer convenience, and payment system sustainability will be crucial as India continues its journey towards a digital-first economy.
The final decision on introducing UPI MDR and its structure is expected to be taken by policymakers after considering the interests of consumers, merchants, banks, and payment companies.