"Complex UPI MDR structure raises inclusion and compliance concerns"
Merchant Discount Rate (MDR)
Fee charged to merchants for accepting electronic payments, shared across the payment network.
UPI (Unified Payments Interface)
Real-time interoperable retail payment system operated by NPCI, launched in 2016.
The Unified Payments Interface (UPI) is a real-time retail payments overlay developed and governed by the National Payments Corporation of India (NPCI). It connects bank accounts using a Virtual Payment Address and enables both Person-to-Person (P2P) and Person-to-Merchant (P2M) payments without pre-loading funds. NPCI was established under the Payment and Settlement Systems (PSS) Act, 2007, and the Reserve Bank of India (RBI) exercises regulatory oversight of all payment systems under that Act. UPI was launched as public digital infrastructure in 2016 and expanded rapidly through features such as UPI Lite, serving both smartphone and feature-phone users across urban and rural markets.
A key policy lever in UPI's growth was the zero-MDR stance introduced in 2020. This removed the Merchant Discount Rate on UPI transactions to incentivise merchant adoption and drive rapid scale-up. A government incentive scheme compensated banks for the lost revenue. That subsidy accelerated adoption but created long-run concerns about financial sustainability. Banks and payment providers argued that transaction processing, network maintenance, and fraud controls require stable revenue. The core policy trade-off is between rapid financial inclusion through subsidised pricing and a self-sustaining ecosystem capable of investing in resilience and innovation.
A Merchant Discount Rate (MDR) is a fee charged to the merchant for accepting electronic payments. The acquiring bank or payment processor collects it and distributes it across the network. For card networks, MDR is long-established and funds network costs, acquisition, and risk management. In UPI's case, processors and banks operated with negligible merchant fees under the zero-MDR policy, shrinking the direct revenue pool for NPCI, banks, and payment service providers despite rising infrastructure and compliance costs.
Under the new framework proposed by NPCI, a 0.4% MDR will apply to P2M (Person-to-Merchant) UPI transactions exceeding Rs 2,000 per transaction. P2P transfers remain free. Small merchants whose UPI turnover is up to Rs 1 lakh per month are fully exempt from the charge. Transactions in essential-service categories above the threshold attract a flat Rs 5 per transaction rather than the percentage-based fee. …
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?
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 statements about the new UPI MDR framework: 1. A 0.4% MDR applies to merchant UPI transactions above Rs 2,000. 2. Small merchants with monthly UPI turnover up to Rs 1 lakh are exempt. 3. Person-to-person UPI transfers are charged the same MDR above the threshold. Which of the statements given above is/are correct?
Who is legally designated as bearing the Merchant Discount Rate (MDR) under the new UPI pricing framework?
Match the items in Column I with charges/conditions in Column II: Column I: (A) Essential-service merchant payments above threshold, (B) Small merchants under turnover cap, (C) High-value merchant payments above Rs 2,000. Column II: (1) Flat Rs 5 fee, (2) Exempt, (3) 0.4% MDR.
Assertion (A): Introducing MDR on higher-value merchant UPI transactions will improve long-term sustainability of payment infrastructure. Reason (R): The government completely withdrew all incentives to banks and payment providers before the MDR announcement. Choose the correct option.
When is the new UPI MDR framework scheduled to take effect?
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