"Parliament moves to lift zero-MDR mandate on UPI payments"
Merchant Discount Rate (MDR)
fee a merchant pays its acquiring bank to process a digital payment, typically shared across the payment chain.
UPI (Unified Payments Interface)
NPCI-operated real-time interoperable bank-to-bank payment protocol launched in April 2016.
Unified Payments Interface (UPI) was launched by the National Payments Corporation of India (NPCI) in April 2016, built on Immediate Payment Service (IMPS) rails, under the regulatory oversight of the Reserve Bank of India (RBI), which derives its authority over payment systems from the Payment and Settlement Systems (PSS) Act, 2007. NPCI is a not-for-profit entity — not a statutory body — and operates UPI as an open, interoperable, real-time bank-to-bank transfer protocol. The system's explosive growth was catalysed by the Jan Dhan-Aadhaar-Mobile (JAM) trinity, which created the foundational infrastructure for digital financial inclusion at scale, making UPI the world's largest real-time retail payments platform by volume.
A critical but often overlooked feature of UPI's design has been its zero Merchant Discount Rate (MDR) regime. Since January 2020, a statutory prohibition under the Finance Act, 2020 barred any MDR from being levied on UPI and RuPay debit card transactions. The cost of running the infrastructure was instead borne by banks, payment applications, and the government through periodic budgetary reimbursements — a subsidy that has been unevenly disbursed and has never fully covered industry's estimated operating costs. This fiscal arrangement has always been structurally fragile, and the current legislative move is the direct consequence of that fragility.
The broader legislative architecture governing digital finance in India has historically lagged behind technological change. The Bankers' Books Evidence Act, 1891 — a colonial-era statute — governed the admissibility of bank records in courts, but its provisions were designed for physical ledgers and did not explicitly cover electronic or digital records. As banking moved comprehensively to core-banking and cloud-based systems, the evidentiary gap created legal uncertainty in commercial litigation, loan recovery proceedings, and fraud cases.
Merchant Discount Rate (MDR) is the percentage of a transaction value that a merchant pays to its payment service provider for accepting digital payments. In a standard payment chain, MDR is split among the issuing bank (interchange fee), the acquiring bank, and the payment network. On UPI, this entire revenue stream was eliminated by statute, making UPI the only major real-time payments system in the world operating at mandated zero cost to merchants. The rationale was to accelerate adoption and prevent the exclusion of small merchants who could not absorb even marginal transaction costs.
The zero-MDR policy created a structural tension: banks and payment aggregators bore the cost of infrastructure without a corresponding revenue stream, while the government's budgetary reimbursements were irregular and insufficient. …
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 Merchant Discount Rate (MDR) on UPI transactions, consider the following statements:
1.MDR on UPI was mandated at zero by statute since January 2020.
2.The Taxation and Other Laws (Amendment) Bill, 2026 itself specifies the rate at which MDR will be levied on large merchants.
3.The zero-MDR regime meant UPI infrastructure costs were borne by banks, payment applications, and government reimbursements.
Which of the statements given above is/are correct?
Consider the following statements about NPCI's 30% market-cap rule on UPI:
1.It limits any single third-party UPI application to 30% of total UPI transaction volume.
2.It was cited in the US Trade Representative's 2026 report as a barrier to American payment firms.
3.It applies equally to RuPay and to third-party applications such as those operated by foreign firms.
Which of the statements given above is/are correct?
Want the full note, Prelims Facts & MCQ answers?
Create a free account — takes less than a minute.
Create free account