"NPCI Reintroduces UPI Merchant Discount Rate on Transactions Above Rs 2,000"
Merchant Discount Rate (MDR)
Fee a merchant pays to its bank for processing a digital payment, shared among acquiring bank, issuing bank, and payment network.
UPI (Unified Payments Interface)
Real-time interoperable payment system launched in 2016 by NPCI, linking bank accounts across institutions.
The Unified Payments Interface (UPI) was developed by the National Payments Corporation of India (NPCI) and launched in 2016. NPCI is a not-for-profit umbrella body set up under the Payment and Settlement Systems Act, 2007 to operate retail payment systems. The Reserve Bank of India (RBI) is the apex regulator for all payment systems under this Act. UPI operates on an interoperable architecture: a user on any UPI-enabled app can pay any merchant or individual, regardless of which bank or app the other party uses. NPCI also created RuPay, India's domestic card payment network, as an alternative to international card schemes.
The Merchant Discount Rate (MDR) is the fee a merchant pays to its acquiring bank for processing a digital payment. This fee is shared among the acquiring bank, the issuing bank, and the payment network. For credit cards, MDR typically ranges from 1% to 3%. For debit cards, it is capped at 0.9%. UPI and RuPay debit cards were exempted from any MDR under Section 10A of the Payment and Settlement Systems Act, 2007, read with Section 269SU of the Income-tax Act, 1961. Before this exemption, MDR of up to 0.30% applied on UPI person-to-merchant (P2M) transactions.
In January 2020, the government abolished MDR on UPI and RuPay debit card transactions. This zero-MDR policy treated the payment system as a public utility. The government compensated banks and payment service providers through an annual incentive scheme, spending approximately Rs 2,000 crore per year. However, this subsidy covered only around 11 per cent of actual industry costs over four years, totalling approximately Rs 8,730 crore disbursed across that period. The Standing Committee on Finance flagged this structural unsustainability, setting the stage for a policy revision.
MDR is a merchant-side charge, not a customer fee. When a merchant accepts a digital payment, the acquiring bank deducts a small percentage before crediting the merchant's account. This revenue is then split among the acquiring bank, the issuing bank, and the payment network. The zero-MDR regime eliminated this revenue stream entirely for UPI transactions. Banks and payment service providers argued that processing costs, including infrastructure investment, fraud management, and settlement operations, were not being recovered. This discouraged long-term investment in the payments ecosystem.
UPI is also structurally distinct from the Digital Rupee (e-₹), India's Central Bank Digital Currency. In UPI, money moves between bank accounts and liability rests with the transacting banks. In the Digital Rupee model, wallet balances transfer directly from one wallet to another with no bank-statement entry, and the RBI itself carries the liability as the sovereign issuer. …
Which one of the following best describes the term "Merchant Discount Rate" sometimes seen in news ?
Consider the following statements:
1.National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country.
2.NPCI has launched RuPay, a card payment scheme.
Which of the statements given above is/are correct?
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
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 term 'Merchant Discount Rate (MDR)' in the context of digital payments?
With reference to the revised UPI Merchant Discount Rate (MDR) framework announced by NPCI, consider the following statements:
1.Person-to-person (P2P) UPI transfers above ₹2,000 will attract an MDR of 0.4 per cent.
2.Merchants earning up to ₹1 lakh per month via UPI QR codes are exempt from MDR charges.
3.Payments for railways, fuel, and telecom above ₹2,000 attract a flat fee of ₹5 per transaction.
4.Mutual fund and securities payments attract an MDR of 0.4 per cent, capped at ₹300.
How many of the above statements are correct?
With reference to the National Payments Corporation of India (NPCI), consider the following statements:
1.NPCI was established to promote financial inclusion in India.
2.NPCI launched RuPay as India's domestic card payment scheme.
3.NPCI operates under the direct administrative control of the Ministry of Finance.
4.NPCI announced the revised UPI MDR framework applicable to person-to-merchant transactions above ₹2,000.
Which of the statements given above are correct?
Consider the following pairs:
Institution / Scheme — Key Feature
1.NPCI — Operates UPI and launched RuPay card scheme
2.RBI — Designated regulator under the Payment and Settlement Systems Act, 2007
3.Standing Committee on Finance — Found that government incentives covered only 11% of UPI industry costs
4.PM SVANidhi — Provides collateral-free loans to street vendors integrated into UPI
How many of the above pairs are correctly matched?
Assertion (A): The government introduced a zero-MDR policy for UPI transactions in 2020 and compensated payment service providers through an incentive scheme.
Reason (R): The Standing Committee on Finance found that this incentive scheme covered the full cost of operating the UPI infrastructure, making it financially sustainable in the long run.
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