"Proposed bill may allow MDR fees on large-merchant UPI transactions"
Merchant Discount Rate (MDR)
fee charged to a merchant by a bank for processing a payment transaction
Payment and Settlement Systems (PSS) Act, 2007
statute granting RBI authority to regulate all payment system operators in India
The Unified Payments Interface (UPI), launched by the National Payments Corporation of India (NPCI) in 2016, operates under the regulatory framework of the Payment and Settlement Systems (PSS) Act, 2007, which grants the Reserve Bank of India (RBI) authority to license and supervise all payment system operators. NPCI is a not-for-profit entity — not a statutory body — and UPI's open, interoperable, real-time architecture was designed to democratise digital payments by eliminating the friction of proprietary wallets and card networks. The Jan Dhan-Aadhaar-Mobile (JAM) trinity provided the foundational infrastructure that made mass UPI adoption possible.
A critical but often overlooked dimension of UPI's success story is its cost structure. From the outset, the government chose to make UPI effectively free for end-users by eliminating the Merchant Discount Rate (MDR) — the fee that banks and payment processors charge merchants for processing transactions — on UPI and RuPay debit card payments. This policy choice, formalised through a government directive in 2020, was intended to accelerate adoption. The cost of running the infrastructure, however, did not disappear; it was simply redistributed — partly absorbed by banks and payment service providers (PSPs), and partly subsidised by the government through an incentive scheme for low-value BHIM-UPI and RuPay transactions. This structural tension between zero-cost access and real infrastructure expenditure is now coming to a head.
The Merchant Discount Rate (MDR) is the charge levied on a merchant by the bank or payment processor that handles a transaction. It is not a tax; it is a fee that covers the costs of authorisation, settlement, reconciliation, cybersecurity, fraud detection, Know-Your-Customer (KYC) compliance, cloud infrastructure, and dispute resolution. For credit cards, MDR in India ranges from 1–3% of transaction value; for debit cards, it is up to 0.9%. For UPI and RuPay debit cards, MDR was effectively zeroed out by government policy, creating a structural anomaly where the same large merchant — say, a major e-commerce platform — pays MDR on Visa/Mastercard transactions but not on UPI.
The total annual cost of operating UPI and RuPay debit card infrastructure is estimated at approximately Rs 20,000 crore per year. The government's incentive scheme, which subsidises transactions up to Rs 2,000 made to small merchants at a cap of 0.15% of transaction value, paid out Rs 8,730 crore over four years (FY 2021-22 to FY 2024-25) — a sum that the Standing Committee on Finance found represented only 11% of the total cost incurred by the digital payments industry. …
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news ?
With reference to digital payments, consider the following statements :
1.BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account.
2.While a chip-pin debit card has four factors of authentication, BHIM app has only two factors of authentication.
Which of the statements given above is/are correct?
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
Consider the following countries:
I.United Arab Emirates
II.France
III.Germany
IV.Singapore
V.Bangladesh
How many of the above are countries, other than India, where UPI is used for international merchant payments?
With reference to the Merchant Discount Rate (MDR) on digital payments in India, consider the following statements:
1.MDR on UPI and RuPay debit card transactions was eliminated by a government directive, not by an amendment to the PSS Act, 2007.
2.MDR on credit cards in India is currently higher than MDR on debit cards.
3.The government's incentive scheme for low-value BHIM-UPI transactions subsidises merchants at a rate capped at 0.5% of transaction value.
Which of the statements given above is/are correct?
The 'Taxation and Other Laws (Amendment) Bill, 2026', introduced in Parliament, proposes amendments to which of the following to enable MDR on UPI transactions?
According to a report by the Standing Committee on Finance, the government's incentive scheme for BHIM-UPI and RuPay debit card transactions (FY 2021-22 to FY 2024-25) covered approximately what proportion of the total cost incurred by the digital payments industry?
With reference to UPI transactions in India in FY 2025-26, consider the following statements:
1.Transactions above Rs 2,000 constituted approximately 4% of all UPI transactions by volume.
2.Transactions above Rs 2,000 accounted for approximately two-thirds of UPI's total transaction value.
3.The total number of UPI transactions in FY 2025-26 exceeded 30,000 crore.
Which of the statements given above is/are correct?
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