Home / Business and Economy / India Considers MDR for UPI: Big Merchants Face Fees Again
India Considers MDR for UPI: Big Merchants Face Fees Again
16 Jul
Summary
- India may reintroduce merchant discount rate for large UPI transactions.
- Zero MDR since January 2020 aimed to boost digital payment adoption.
- Proposed fee threshold may exclude small merchants and transactions.
India is reportedly considering the restoration of the Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions for larger merchants. This move comes after multiple industry representations highlighted the growing volume of digital transactions and the need for a sustainable revenue model.
MDR, a fee merchants pay for processing digital payments, has been zero since January 2020 when the government waived it to drive digital adoption. The current proposal under examination suggests a threshold for annual merchant turnover at ₹1-1.5 crore and for individual transactions at ₹2,000, aiming to shield small businesses and smaller payments.
The Parliamentary standing committee on finance has also advocated for reintroducing MDR for large merchants, emphasizing the critical need for financial sustainability within the UPI ecosystem. The government has previously allocated funds to compensate the industry for the loss of MDR, but these payouts have decreased over time, leaving banks and fintech firms seeking a viable business model.
Under a potential MDR 2.0 regime, peer-to-peer transfers and payments to small merchants are expected to remain free. The National Payments Corporation of India (NPCI) data shows a remarkable surge in UPI's annual transaction volume, from 20 million in FY17 to an estimated 242 billion in FY26, underscoring the scale of digital transactions in India.
