"New UPI Merchant Fee Raises Cost Pass-Through Concerns"
MDR (Merchant Discount Rate)
fee charged to a merchant by a bank/network for processing a digital payment.
NPCI
National Payments Corporation of India, the umbrella body that operates UPI.
The Unified Payments Interface (UPI) was launched in 2016 by the National Payments Corporation of India (NPCI), an RBI-promoted umbrella body for retail payments, to allow instant bank-to-bank transfers using a phone number or QR code. Unlike a Central Bank Digital Currency (CBDC) such as the Digital Rupee, where a wallet-to-wallet transfer of a sovereign digital token needs no interbank settlement, UPI transactions involve a real interbank debit-credit leg each time money moves, which is why the system genuinely costs money to run. In both cases, liability for a failed or disputed transaction rests with users and their banks, but UPI additionally requires banks and NPCI to bear ongoing settlement and processing costs that a CBDC wallet transfer does not carry.
In 2020, the government removed the Merchant Discount Rate (MDR) on UPI merchant transactions entirely, meaning merchants paid nothing to accept digital payments. This zero-MDR policy was not truly free: the government compensated banks through an incentive scheme that grew from about Rs 1,389 crore in FY 2021-22 to about Rs 3,631 crore in FY 2023-24. That rising taxpayer-funded subsidy, alongside UPI's growth into one of the world's largest digital payment networks, set up the current shift toward a partially fee-based model meant to make UPI financially self-sustaining rather than dependent on annual budgetary support.
An MDR is the fee an acquiring bank or payment network charges a merchant for processing a digital payment, usually a percentage of the transaction value. From October 15, a new MDR of 0.4%, capped at Rs 300, applies to merchant UPI payments above Rs 2,000. A flat fee of Rs 5 applies to select recurring payments such as utility bills, telecom, and fuel beyond the threshold. Merchants with monthly UPI turnover up to Rs 1 lakh, termed micro-merchants, are exempt, and person-to-person (P2P) transfers remain completely free. …
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 revised Merchant Discount Rate (MDR) framework for UPI effective from October 15, consider the following statements:
1.The 0.4% MDR applies to all UPI transactions, including person-to-person transfers.
2.The MDR is capped at Rs 300 per transaction.
3.Merchants with monthly UPI turnover up to Rs 1 lakh are exempt from the new MDR.
Which of the statements given above is/are correct?
Consider the following statements regarding the Unified Payments Interface (UPI) and the Central Bank Digital Currency (Digital Rupee):
1.UPI transactions involve an interbank settlement leg, while Digital Rupee wallet transfers do not.
2.UPI transactions are reflected in bank statements, while Digital Rupee wallet transfers are not.
3.In both systems, liability for disputed transactions lies with users and their banks.
How many of the above statements are correct?
Which one of the following best describes the difference between the 'statutory incidence' and the 'economic incidence' of a charge such as the Merchant Discount Rate (MDR)?
Match the following UPI-related terms with their correct description:
A.Merchant Discount Rate (MDR) 1. Body that operates UPI
B.NPCI 2. Fee charged to merchant for accepting digital payment
C.Micro-merchant 3. Free instant transfer between individuals
D.Person-to-person (P2P) transfer 4. Seller exempt from new MDR due to low turnover
The government's UPI bank incentive scheme, meant to compensate banks under the earlier zero-MDR policy, is best understood as an example of which of the following?
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