Government may charge big businesses on UPI payments above ₹2,000
What's the story
The Indian government is mulling the reintroduction of a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions for large merchants. The fee, which could be less than 0.5%, would only apply to transactions over ₹2,000. MDR is a fee levied by banks for processing real-time digital transactions and has been absent from UPI payments since January 2020.
Proposal details
MDR proposal focuses on merchant-side economics
The MDR proposal is only applicable to large merchants and businesses, not consumers.
A government source clarified that this discussion is focused on merchant-side economics and the sustainability of the payments ecosystem.
The rapid expansion of UPI has also led to increased costs for banks and other participants in maintaining its infrastructure.
Incentive scheme
Current government incentives for low-value UPI transactions
The central government currently incentivizes banks and other payment system operators for low-value UPI transactions of up to ₹2,000.
This scheme was launched in FY22 to promote digital payment platforms across demographic groups.
However, a Standing Committee on Finance report warned that the absence of MDR has made the UPI ecosystem financially unsustainable.
Growth projection
Projected growth of UPI in the coming years
The Standing Committee on Finance also projected that UPI could grow tenfold in the coming years, adding another 600 million users and processing 100-150 billion transactions a month over the next five to seven years.
However, it also noted that this growth is challenged by slowing momentum and a structural funding gap limiting ecosystem investment in infrastructure, security, and merchant onboarding.
Policy shift
Potential impact on India's digital payments ecosystem
The potential reintroduction of MDR for large merchants could significantly reshape India's digital payments ecosystem.
The proposal is under active consideration after repeated requests from the digital payments industry.
If approved, it would ensure that small merchants and low-value transactions continue to enjoy free UPI payments, preserving the government's push for wider digital payment adoption.