The central government is considering a major policy shift that could reintroduce the Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions exceeding ₹3,000, sources familiar with the matter told NDTV Profit. The move is aimed at helping banks and payment service providers recover growing infrastructure and operational costs associated with high-value digital payments.
The plan under discussion would apply MDR based on the transaction amount rather than the merchant’s overall turnover. “Smaller UPI transactions are likely to stay exempt, but high-value payments could soon attract a fee, effectively rolling back the zero-MDR policy introduced in January 2020,” a senior official said.
A high-level meeting was held recently involving officials from the Prime Minister’s Office, Department of Economic Affairs, and Department of Financial Services to review the MDR framework.
Why the Change?
Banks and digital payment platforms have repeatedly raised concerns about the rising cost of servicing large UPI transactions. Despite UPI handling nearly 80% of all retail digital transactions in India, the absence of MDR has made it difficult for service providers to sustain or expand infrastructure.
Since 2020, UPI-based person-to-merchant (P2M) transactions have touched ₹60 lakh crore, driven largely by consumer trust and convenience in high-ticket digital payments. However, larger transactions involve higher costs for payment processors, which currently go unrecovered under the zero-MDR regime.
The Payments Council of India has proposed introducing a 0.3% MDR on UPI transactions conducted by large merchants. In comparison, MDR rates for credit and debit card payments currently range between 0.9% and 2%, excluding transactions via RuPay.
Sources also clarified that RuPay credit cards are expected to remain outside the MDR ambit for now.
A final decision is expected within the next one to two months after stakeholder consultations with banks, fintech firms, and the National Payments Corporation of India (NPCI).
If adopted, the new policy would signal a shift from promoting UPI adoption toward building a financially sustainable digital payments ecosystem.