The merchant discount rate (MDR) on UPI transactions may soon make a comeback, with discussions indicating that the charge could be fixed between 25 and 30 basis points for select categories of payments, Moneycontrol reported.
However, the final rate and implementation framework are still under discussion and may change before a decision is finalised.
A basis point is equal to one-hundredth of a percentage point. A 25 basis point MDR would translate into a charge of 25 paise for every ₹100 transaction, or ₹25 on a payment of ₹10,000.
According to the report, the proposed MDR is likely to be limited to high-value UPI transactions and payments made by large commercial entities.
The exact transaction value thresholds and categories eligible for the charge are still being worked out, with the final MDR structure expected to depend on exemptions decided by the government.
MDR refers to the fee paid by merchants to banks and payment service providers for facilitating digital transactions. The charge applies to merchant payments and is not expected to be imposed directly on consumers using UPI.
Before 2020, UPI transactions carried an MDR of around 30 basis points. However, the government introduced a zero-MDR policy to encourage wider adoption of digital payments and accelerate the growth of UPI across the country.
Unlike UPI, other payment methods such as debit and credit cards already involve MDR charges. Debit card MDR is generally around 80-90 basis points, while credit card MDR can be significantly higher, reaching up to 250 basis points.
Industry estimates suggest that imposing a 25 basis point MDR on merchant transactions above a possible ₹2,000 threshold could generate nearly ₹13,000 crore in annual revenue.
The discussions gained momentum after the government introduced a Bill in Parliament on August 3 seeking amendments to provisions that prevented banks and payment companies from charging fees on certain digital transactions.
Although the Bill does not directly mention restoring MDR on UPI payments, sources indicated that bringing back MDR is among the possible implications of the proposed changes.
The move is being considered as stakeholders evaluate ways to support the digital payments ecosystem while maintaining UPI’s rapid growth and accessibility.
