"Government Clarifies New UPI MDR Framework: 96% Merchant Transactions Remain Free"
Merchant Discount Rate (MDR)
Fee paid by a merchant to its bank for accepting digital payments, shared among acquiring bank, issuing bank, and payment network.
Person-to-Person-Merchant (P2PM)
UPI category for small merchants using QR codes, distinct from large commercial P2M transactions; zero MDR applies up to Rs 1 lakh monthly receipts.
India's digital payments ecosystem rests on the Payment and Settlement Systems (PSS) Act, 2007, which gives the Reserve Bank of India (RBI) authority to regulate payment systems. The National Payments Corporation of India (NPCI), incorporated in 2008 as a not-for-profit umbrella body under the PSS Act, operates UPI and the RuPay card network. UPI was launched in 2016 and works on an open, protocol-based architecture. Any UPI-enabled app can move money between any two bank accounts instantly, without physical terminals or card issuance. Because UPI is bank-account-based, every transaction is reflected in bank statements and settled in real time, a key structural difference from the Digital Rupee (e-₹), which transfers wallet balances directly and does not create a bank-statement entry. For the Digital Rupee, liability rests with the RBI as the sovereign issuer, not with users and their banks as in the UPI model.
The Merchant Discount Rate (MDR) is the fee a merchant pays to its bank for accepting digital payments. It is distributed among the acquiring bank, the issuing bank, and the payment network. For UPI and RuPay, the government removed MDR through Section 10A of the PSS Act, inserted by the Finance Act, 2020. This made UPI free for both merchants and consumers. The government compensated banks and payment providers through a direct incentive scheme. A subsequent amendment to Section 10A replaced the outright bar on charges with an enabling provision, allowing the government to notify future charges. The Parliamentary Standing Committee on Finance (32nd Report) quantified the resulting funding gap at approximately Rs 18,700–20,700 crore annually, formally reopening the MDR policy debate. UPI has since expanded internationally: among the countries listed in recent assessments, the UAE, France, and Singapore accept UPI for international merchant payments, while Germany and Bangladesh do not yet do so at the merchant level.
UPI's cost structure is fundamentally different from card networks. NPCI operates the entire UPI switch for approximately Rs 500 crore per year, translating to roughly two paise per transaction. Card networks involve physical point-of-sale terminals, card issuance, and credit risk underwriting, costs that historically justified MDR. Applying a card-style MDR to UPI ignores this structural difference. The BHIM app, which runs on UPI, uses two-factor authentication (a device-bound PIN and a bank-registered mobile number), making it secure without the four-factor authentication a chip-pin debit card requires. This simplicity is central to UPI's mass adoption and its displacement of mobile wallets for everyday payments.
The new tiered MDR framework, introduced under the PSS Act following deliberations by the UPI Steering Committee, preserves the zero-cost model for the vast majority of users. …
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?
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?
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
With reference to the new UPI Merchant Discount Rate (MDR) framework introduced under the Payment and Settlement Systems Act, 2007, consider the following statements:
1.All person-to-person UPI transactions remain free regardless of the amount transferred.
2.Person-to-merchant UPI transactions up to ₹2,000 attract an MDR of 0.2%.
3.Small merchants receiving up to ₹1 lakh per month through UPI QR codes pay zero MDR.
4.For transactions of ₹75,000 and above, the standard MDR is capped at ₹300 per transaction.
How many of the above statements are correct?
Match the following UPI transaction categories with their applicable MDR rates under the new framework:
List I (Transaction Type) — List II (MDR Rate)
A.Standard P2M transactions above ₹2,000 — 1. 0.02%, capped at ₹300
B.Essential sector transactions above ₹2,000 (railways, telecom, fuel) — 2. 0.4%, capped at ₹300 at ₹75,000+
C.Capital market transactions (mutual funds, securities) — 3. Zero MDR
D.P2M transactions up to ₹2,000 — 4. Flat ₹5 per transaction
Which of the following is the correct matching?
With reference to the legal basis of UPI's zero-MDR regime and its modification, consider the following statements:
1.The zero-MDR regime for UPI was established through Section 10A of the Payment and Settlement Systems Act, 2007, inserted by the Finance Act, 2020.
2.The new tiered MDR framework is introduced under the same Payment and Settlement Systems Act, 2007.
3.MDR collected under the new framework is a tax revenue of the Government of India.
Which of the statements given above is/are correct?
With reference to UPI transaction limits and consumer protections under the new MDR framework, consider the following statements:
1.Daily UPI transaction limits prescribed by banks and NPCI are charging thresholds above which MDR applies.
2.UPI application providers are prohibited from imposing platform fees or hidden charges on users.
3.P2P UPI transactions account for 70% of total UPI transaction value and remain entirely outside the MDR framework.
Which of the statements given above is/are correct?
Which of the following correctly describes the dedicated fund established under the new UPI MDR framework?
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