India Won't Charge UPI Users, But Merchants May Pay Fee
A nominal Merchant Discount Rate may apply to high-value transactions, with the government aiming to make the UPI ecosystem more sustainable
The Indian government has clarified that customers will not be charged for using the Unified Payments Interface (UPI) for personal transactions. However, a nominal Merchant Discount Rate (MDR) may be applicable for certain high-value merchant transactions. This move aims to make the UPI ecosystem more sustainable and future-ready.
The government has amended the Payment and Settlement Systems Act to enable the introduction of a Merchant Discount Rate for UPI transactions. The UPI and Services Steering Committee headed by the National Payments Corporation of India (NPCI) will decide the structure of any MDR and the threshold above which transactions could attract the fee.
The industry's estimated operational cost for running the UPI ecosystem is around ₹20,700 crore. To promote RuPay debit cards and low-value BHIM-UPI transactions, the government has allocated ₹2,000 crore to compensate payment companies for losses arising from zero MDR.
The Parliamentary Standing Committee on Finance has recommended the early implementation of a calibrated, tiered MDR framework for higher-value merchant transactions while protecting small merchants and person-to-person (P2P) payments. The government is considering a tiered incentive structure that would gradually reduce government support for the UPI ecosystem over the coming years.
## What it means The introduction of a nominal MDR for high-value merchant transactions is expected to make the UPI ecosystem more sustainable. The government's aim is to strengthen cybersecurity, improve network stability, prevent fraud, and support further innovation in the digital payments system. With the UPI ecosystem continuing to grow, the introduction of a calibrated MDR framework is seen as a necessary step to ensure its long-term sustainability.
## Why it matters The UPI ecosystem has become an essential part of India's digital payments landscape, with millions of users relying on it for everyday transactions. The government's decision to introduce a nominal MDR for high-value merchant transactions is a significant development that will impact the way businesses use the UPI. As the ecosystem continues to evolve, it is essential to strike a balance between making it sustainable and ensuring that users are not unfairly charged.
