MDR regime should not dilute UPI promise

The Union government’s decision to set a Merchant Discount Rate (MDR) for person-to-merchant Unified Payments Interface (UPI) transactions above Rs 2,000 was expected after Parliament passed an amendment to the Payment and Settlement Systems Act, 2007, last month. Individual consumers are exempt from the MDR of 0.4%, and there will be no fee on person-to-person transactions. For transactions of Rs 75,000 and above, the MDR has been capped at Rs 300, which will be paid by the merchants. Through a notification, the government has restricted the imposition of direct or indirect charges on people making or receiving payments through electronic modes such as RuPay-enabled debit cards and UPI transactions up to Rs 2,000.UPI has been a major success story and has revolutionised payments in the country. A transaction value of Rs 0.07 lakh crore in 2016-17 has grown to around Rs 314 lakh crore in 2025-26. Volumes have increased at a compound annual growth rate of 188%, and the average transaction value has increased by 155% since the system’s inception. On average, the interface handles 660 million daily transactions. It has reached the poorest sections of society. Around 96% of the transactions are below the Rs-2,000 threshold. It is necessary to protect the overwhelming majority of everyday payments made by small vendors and consumers.No US pressure in UPI MDR decision; NPCI circular offers no advantage to foreign credit cards: Finance MinistryThe argument for imposing a cost on the transactions is that such a large payment system will not be sustainable solely on subsidies. A parliamentary committee observed that the government incentive to UPI covered only 11% of the operational costs. Investments are necessary to ensure security and prevent fraud. The infrastructure needs to be constantly upgraded. The MDR regime, as it is designed now, can help meet these objectives. A viable business model is also necessary to attract new players. However, there is an element of unfairness in imposing a new cost on a facility that the users have grown accustomed to. It must be ensured that the merchants do not pass on the MDR costs to the consumers. Continuous monitoring is required to ensure that platform fees or hidden charges are not levied on the consumers. The system should continue to be simple and affordable to the vast majority of users. The goal of a cashless system will be defeated if the UPI – a digital public good – loses its attraction. The new payment policy should be open to review if the changes become counterproductive.

Source: Deccan Herald