"UPI at Ten Years: MDR Amendment and Market Concentration Challenges"
Merchant Discount Rate (MDR)
fee charged by a merchant's bank for processing a digital payment transaction.
NPCI (National Payments Corporation of India)
RBI-regulated not-for-profit entity that owns and operates UPI, RuPay, and other retail payment systems.
The Unified Payments Interface (UPI) was developed by the National Payments Corporation of India (NPCI) — an RBI-regulated, not-for-profit entity established under the Payment and Settlement Systems (PSS) Act, 2007 — in collaboration with the Indian Banks' Association (IBA). Conceptual groundwork began as early as 2012–13, when the RBI's payments vision document identified cash-on-delivery as a persistent barrier to e-commerce digitisation, with nearly a third of online purchases still settled in cash. The Immediate Payments Service (IMPS), which preceded UPI, demonstrated that mobile-based real-time transfers were technically feasible, and an RBI committee on comprehensive financial services for small businesses explicitly anticipated the 'spontaneous proliferation' of merchant participation that UPI would eventually deliver.
UPI was piloted in April 2016 and became fully operational in August 2016, riding the foundational infrastructure of the Jan Dhan-Aadhaar-Mobile (JAM) trinity. Its open, interoperable, real-time architecture — allowing any bank account holder to transact across platforms using a Virtual Payment Address — distinguished it from closed-loop mobile wallets and positioned it as a genuine Digital Public Infrastructure (DPI). The PSS Act, 2007 provides the statutory basis for RBI's licensing and supervisory authority over all payment system operators, including NPCI.
UPI's growth trajectory was not linear. Monthly transaction values remained below ₹10,000 crore until December 2017 and took another year to cross ₹1 lakh crore. A critical structural obstacle was the Merchant Discount Rate (MDR) — the fee that merchants' banks charge for processing digital payments. High MDR deterred small merchants from accepting digital payments, creating a chicken-and-egg problem: without merchant acceptance, consumer adoption stalled.
The High-Level Committee on Deepening of Digital Payments, led by a prominent technologist-policymaker, recommended in May 2019 that customers and small merchants not be charged MDR on digital transactions, with the government subsidising MDR on transactions up to ₹2,000. Acting on this, the government from 2020 began subsidising UPI and RuPay debit card payments to small merchants through the Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI Transactions (P2M), capped at 0.15% of transaction value, shared among banks, payment service providers, and third-party app providers. …
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
Which of the following is a most likely consequence of implementing the 'Unified Payments Interface (UPI)'?
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?
With reference to the Merchant Discount Rate (MDR) on UPI transactions, consider the following statements:
1.The government's MDR subsidy scheme for low-value UPI transactions was capped at 0.15% of transaction value.
2.The Payment and Settlement Systems (PSS) Act, 2007 originally prohibited merchants from being charged any fee for receiving UPI payments.
3.The MDR subsidy under the P2M incentive scheme was shared among banks, payment service providers, and third-party app providers.
Which of the statements given above is/are correct?
With reference to the institutional architecture of UPI, which of the following statements is/are correct?
1.NPCI (National Payments Corporation of India) is a statutory body established under the PSS Act, 2007.
2.UPI was developed by NPCI in collaboration with the Indian Banks' Association (IBA).
3.The PSS Act, 2007 grants the RBI authority to license and supervise all payment system operators in India.
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