"Government Clarifies UPI MDR Proposal: Users Remain Exempt, Merchants Partially Affected"
Merchant Discount Rate (MDR)
fee charged by a merchant's bank for processing a digital payment transaction
PSS Act, 2007
Payment and Settlement Systems Act; the parent law governing all payment operators, administered by RBI
The Unified Payments Interface (UPI) was launched by the National Payments Corporation of India (NPCI) in 2016 under the regulatory framework of the Payment and Settlement Systems (PSS) Act, 2007, which vests overarching supervisory authority in the Reserve Bank of India (RBI). NPCI, a not-for-profit entity, operates UPI as an open, interoperable, real-time overlay on India's banking infrastructure, enabling both Person-to-Person (P2P) and Person-to-Merchant (P2M) transfers via Virtual Payment Addresses (VPAs). The foundational enabler was the Jan Dhan-Aadhaar-Mobile (JAM) trinity, which created the infrastructure for digital financial inclusion at scale.
A critical policy decision that shaped UPI's mass adoption was the abolition of the Merchant Discount Rate (MDR) on UPI and RuPay transactions effective January 2020, with the government compensating payment service providers through a subsidy mechanism. MDR is the fee that a merchant's bank charges for processing a digital payment — it is typically shared among the acquiring bank, issuing bank, and the payment network. Its removal made UPI transactions cost-free for both users and merchants, catalysing explosive adoption. However, this subsidy-dependent model has raised long-term sustainability questions as transaction volumes have scaled to billions per month.
The Merchant Discount Rate (MDR) is the foundational revenue mechanism for payment ecosystems globally. In most mature markets, card networks charge merchants an MDR of 1–3% per transaction, which funds the infrastructure, fraud prevention, and innovation costs of the payment stack. India's decision to zero-rate MDR on UPI was a deliberate financial-inclusion intervention — removing the cost barrier that had historically deterred small merchants from accepting digital payments. The trade-off, however, is that NPCI, banks, and third-party app providers bear infrastructure costs without a commensurate revenue stream, making the ecosystem dependent on government subsidies and cross-subsidisation from other products.
The proposed amendment to Section 10A of the PSS Act, 2007 via the Taxation and Other Laws (Amendment) Bill, 2026 is described by the government as an enabling provision — it does not itself impose MDR but creates the legal framework under which MDR could be introduced in the future. …
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
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 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)'?
With reference to the proposed amendment to the Payment and Settlement Systems (PSS) Act, 2007, consider the following statements:
1.The amendment mandates the immediate introduction of MDR on all UPI merchant transactions.
2.Any future MDR will be decided by the 'UPI and Services Steering Committee' headed by NPCI.
3.Person-to-Person (P2P) UPI transactions will continue to be free of charge.
Which of the statements given above is/are correct?
Which of the following best describes the Merchant Discount Rate (MDR) in the context of digital payments?
Assertion (A): The government zeroed out MDR on UPI and RuPay transactions to accelerate financial inclusion and merchant adoption of digital payments.
Reason (R): Removing MDR eliminates the revenue stream that payment service providers rely on to fund infrastructure, cybersecurity, and fraud prevention costs.
Which of the following is correct?
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