"Government Announces Tiered MDR Framework for UPI Merchant Transactions"
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-Merchant (P2M)
UPI transaction from an individual customer to a registered business merchant, now subject to tiered MDR above Rs 2,000.
India's digital payments ecosystem is governed by 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 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. This interoperability is a defining structural feature: a user on one app can pay a merchant using a different app or bank, with NPCI routing the transaction in real time.
The Merchant Discount Rate (MDR) is the fee a merchant pays to its bank for accepting digital payments. It is not a customer-facing charge. MDR is distributed among three parties: the acquiring bank (the merchant's bank), the issuing bank (the customer's bank), and the payment network (such as NPCI). For UPI and RuPay, the government removed MDR through Section 10A of the PSS Act, inserted by the Finance Act, 2020, making UPI free for both merchants and consumers. Banks and payment providers were compensated through a direct government 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 by order.
The Parliamentary Standing Committee on Finance (32nd Report) quantified the resulting funding gap at approximately Rs 18,700–20,700 crore annually. This formally reopened the MDR policy debate, as NPCI and banks argued that sustained zero-MDR was unsustainable for infrastructure investment, cybersecurity, and ecosystem resilience. UPI has also expanded internationally: among countries assessed, the UAE, France, and Singapore accept UPI for international merchant payments, while Germany and Bangladesh do not.
The new MDR framework creates a tiered structure based on transaction type, transaction size, and merchant category. All person-to-person (P2P) payments remain completely free, regardless of the amount transferred. For person-to-merchant (P2M) payments, transactions up to Rs 2,000 remain free. Payments above Rs 2,000 attract a standard MDR of 0.4%, capped at Rs 300 for transactions exceeding Rs 75,000.
A separate, lower rate applies to essential services. Payments for railways, telecommunications, insurance, fuel, utility bills (electricity, water, piped gas), education, and agricultural inputs attract a flat Rs 5 per transaction instead of the 0.4% levy. Capital market transactions, mutual funds, securities, stockbrokers, attract 0.02% MDR, also capped at Rs 300. …
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news ?
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 one of the following best describes the Merchant Discount Rate (MDR)?
With reference to the Merchant Discount Rate (MDR) framework for UPI transactions, consider the following statements:
1.All person-to-person UPI payments are exempt from MDR irrespective of the transaction amount.
2.Person-to-merchant UPI payments above Rs 2,000 attract an MDR of 0.4%, capped at Rs 300 for transactions exceeding Rs 75,000.
3.UPI payments for essential services such as railways, fuel, and utility bills attract an MDR of 0.02%.
4.Small merchants receiving up to Rs 1 lakh per month through UPI QR codes are classified as P2PM and pay zero MDR.
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 Category) — List II (MDR Rate)
A.Person-to-merchant payments above Rs 2,000 (standard) — 1. Rs 5 flat per transaction
B.Essential services (railways, fuel, utilities) — 2. 0.4%, capped at Rs 300
C.Capital market transactions (mutual funds, securities) — 3. Zero MDR
D.Person-to-person payments (any amount) — 4. 0.02%, capped at Rs 300
Select the correct matching:
Which of the following statements about the legal basis for UPI's zero-MDR regime and its subsequent modification is correct?
With reference to the Person-to-Person-Merchant (P2PM) category under the UPI MDR framework, consider the following statements:
1.P2PM merchants are small vendors who receive UPI payments through QR codes into personal bank accounts.
2.P2PM merchants are exempt from MDR as long as their monthly UPI inflows do not exceed Rs 1 lakh.
3.A P2PM merchant is automatically reclassified to the P2M category if inflows exceed Rs 1 lakh in any single month.
Which of the statements given above is/are correct?
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