New Delhi, India – The Merchant Discount Rate (MDR) on UPI will not be enough to cover the cost of running and maintaining the payment platform, and so the government will soon hold discussions with the Indian Banks’ Association (IBA) to decide on what quantum of the ongoing government subsidy should continue and in what form, sources in the Ministry of Finance have confirmed.
The Ministry of Finance will also coordinate with the IBA on how to ensure that merchants do not pass on the MDR charge to customers. The MDR charge will go live on UPI on October 15, and there is no proposal to delay this date, the sources said.
The National Payments Corporation of India (NPCI) had earlier issued a circular introducing a charge of 0.4% that most merchants will have to pay banks and payment processors on UPI payments they receive in excess of ₹2,000 per transaction, effective October 15. The charge will not apply to person-to-person UPI transactions and UPI transactions to small vendors, while all person-to-merchant transactions of up to ₹2,000 will also be exempt. In certain essential sectors, including Railways, telecom, insurance, fuel, and agriculture inputs, transactions over ₹2,000 will incur a flat MDR of ₹5.
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“The new MDR framework will make UPI self-sustainable, give incentives for further expansion in rural and semi-urban areas and maintain competitiveness, while ensuring that a large majority of payments remain free of charge,” the Finance Ministry had said, noting that only 4% of merchant transactions will be impacted. The government has also advised banks to ensure merchants do not pass on the MDR charges to customers, a key concern raised during public discussion of the issue. A dedicated fund for promoting the use of UPI by small merchants will be set up using 5% of total MDR collections.
