Government commits to promoting digital payments through UPI without merchant discount rate.

The Indian government has clarified that there will be no merchant discount rate (MDR) on Unified Payment Interface (UPI) transactions. The government has also stated that speculation about MDR on UPI transactions is false and misleading. To promote digital transactions, MDR was made zero from January 2020 for RuPay debit cards and BHIM-UPI transactions. An incentive scheme has also been implemented to support the payment ecosystem.

The Indian government has clarified that there will be no merchant discount rate (MDR) on Unified Payment Interface (UPI) transactions. The government has also stated that speculation about MDR on UPI transactions is false and misleading. To promote digital transactions, MDR was made zero from January 2020 for RuPay debit cards and BHIM-UPI transactions. An incentive scheme has also been implemented to support the payment ecosystem.

The Finance Ministry recently dismissed claims suggesting that a fee would be levied on UPI transactions, calling them "completely false, baseless, and misleading." The ministry emphasized its commitment to promoting digital payments via UPI. Currently, no MDR is applied to UPI and RuPay debit card payments, which are facilitated through the National Payments Corporation of India (NPCI) [1].

The government's decision to keep MDR at zero for UPI transactions is part of its broader strategy to encourage digital payments. This move has been instrumental in the exponential growth of UPI transactions, which have seen an increase from Rs 21.3 lakh crore in FY 2019-20 to Rs 260.56 lakh crore by March 2025. Specifically, P2M (person to merchant) transactions have reached Rs 59.3 lakh crore, reflecting growing merchant adoption and consumer confidence in digital payment methods [2].

However, recent discussions within the government have suggested that there might be a reconsideration of MDR for UPI transactions above a certain threshold. The government is exploring options to compensate banks and payment service providers for their operational costs and technology investments. Sources indicate that a transaction threshold of Rs 2,000-5,000 is being considered, with the intention of exempting small-ticket transactions by common people [2].

The NPCI, which operates UPI, has also been making changes to its system to address recent outages and system congestion. Starting from August 1, new API usage rules will be implemented to prevent the system from buckling under its own weight. These changes include limiting the number of balance enquiries, restricting autopay execution to non-peak hours, and mandating real-time balance updates with every transaction notification [3].

The government's stance on MDR for UPI transactions is a significant development in the Indian digital payments landscape. While the current zero MDR policy has been beneficial in promoting digital transactions, any future changes will need to balance the need for cost recovery with the continued growth and adoption of digital payment methods.

References:
[1] https://www.business-standard.com/industry/news/finance-ministry-denies-upi-transaction-fee-charges-mdr-125061101245_1.html
[2] https://www.financialexpress.com/banking-finance/mdr-levy-on-upi-coming-waiver-likely-for-small-transfers/3870059/
[3] https://www.financialexpress.com/money/npcis-upi-overhaul-know-what-is-changing-from-august-1-3872014/