"Debate Over Percentage-Based Pricing for UPI Merchant Fee"
Merchant Discount Rate (MDR)
fee a bank or network charges a merchant for accepting a digital payment, usually a percentage of value.
Credit-transfer system
a payment where the payer initiates the transfer of funds, as in UPI, NEFT, RTGS, and IMPS.
The Unified Payments Interface (UPI) was launched in 2016 by the National Payments Corporation of India (NPCI), an RBI-promoted, not-for-profit umbrella body for retail payments. UPI is a credit-transfer system: the payer initiates a transfer, and money moves from one bank account to another. This is structurally different from a Central Bank Digital Currency (CBDC) like the Digital Rupee, where a wallet-to-wallet transfer of a sovereign digital token does not require interbank settlement. UPI's every transaction involves a real interbank debit-credit leg, and that settlement requirement is precisely why running UPI costs money, unlike a CBDC wallet transfer. In both systems, however, liability for a failed or disputed transaction still rests with the users and their respective banks.
From 2020, the government removed the Merchant Discount Rate (MDR) on UPI merchant payments entirely, so merchants paid nothing to accept UPI payments. This was not actually free. The government compensated banks through an incentive scheme that grew from about Rs 1,389 crore in one year to about Rs 3,631 crore two years later. That rising subsidy bill, combined with UPI's growth into one of the world's largest digital payment networks, set up the shift toward a partly fee-based model. From October 15, a new MDR of 0.4%, capped at Rs 300, applies to merchant UPI payments above Rs 2,000. Micro-merchants with monthly UPI turnover up to Rs 1 lakh are exempt, and all person-to-person transfers remain free.
India's other credit-transfer systems never used percentage-based pricing. NEFT historically capped charges at Rs 5 for transfers up to Rs 1 lakh and Rs 25 above that. RTGS charges were capped at Rs 25 for transfers between Rs 2-5 lakh and Rs 50 above Rs 5 lakh. IMPS, also an NPCI product, was directed by the government in 2016 to keep charges above Rs 1,000 in line with NEFT's caps. This is the precedent the current pricing debate invokes.
An MDR is the fee a bank or payment network charges a merchant for accepting a digital payment, usually set as a percentage of the transaction value. This percentage model originated in card networks, where a transaction is a 'pull': the merchant initiates the charge, and the customer's card or credit facility is debited after authorisation. Multiple intermediaries, the issuing bank, the acquiring bank, and the card network, each take a cut, which is one reason card MDR is charged as a percentage rather than a flat fee.
UPI is different. It is a 'push' transaction initiated by the payer, structurally closer to NEFT or IMPS than to a card payment. The core question this debate raises is whether a payment rail built specifically as an alternative to card networks should automatically inherit the card industry's percentage-based pricing logic, or whether it should instead use the slab-based, fixed-cap pricing that India's own credit-transfer systems have traditionally used. …
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct?
What is the status of digitalization in the Indian economy? Examine the problems faced in this regard and suggest improvements.
With reference to UPI and the Central Bank Digital Currency (Digital Rupee), consider the following statements:
1.UPI transactions involve a real interbank debit-credit settlement leg for every transfer.
2.Digital Rupee wallet-to-wallet transfers require interbank settlement similar to UPI.
3.In both systems, liability for a failed or disputed transaction rests with the users and their respective banks.
Which of the statements given above is/are correct?
Which of the following statements about the revised Merchant Discount Rate (MDR) on UPI merchant transactions, effective from October 15, is/are correct?
1.The MDR applies only to merchant transactions above Rs 2,000.
2.The MDR is capped at Rs 300 per transaction.
3.Person-to-person UPI transfers are subject to the new MDR.
Select the correct answer using the code given below:
Consider the following statements regarding transaction charges on India's credit-transfer payment systems:
1.NEFT transfers up to Rs 1 lakh historically attracted a maximum charge of Rs 5.
2.RTGS transfers between Rs 2-5 lakh were capped at a maximum charge of Rs 25.
3.In 2016, the government directed public sector banks that IMPS charges above Rs 1,000 should not exceed corresponding NEFT charges.
How many of the above statements are correct?
Match List I (Payment System) with List II (Key Feature) and select the correct answer using the code given below:
List I:
1.NEFT
2.RTGS
3.IMPS
4.UPI
List II:
A.Maximum charge of Rs 5 for transfers up to Rs 1 lakh
B.Real-time, high-value settlement system with no value cap
C.NPCI real-time product directed to align fees with NEFT rates
D.Launched in 2016 as an open, interoperable account-to-account payment system
Which one of the following best describes the National Payments Corporation of India (NPCI)?
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