MDR demand gains momentum as industry bodies rally behind proposal

MDR refers to a fee that merchants pay banks or companies (fintech) processing payments for executing a transaction

The demand to introduce a merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions is growing louder with the Startup Policy Forum (SPF) becoming the latest industry association to endorse the Payments Council of India’s (PCI’s) proposal.

 

PCI, a representative body of digital payment players, has called for a 0.3 per cent MDR on transactions made through UPI at large merchants in a letter to the Prime Minister’s Office this week. It has also sought to introduce an MDR structure on RuPay debit card transactions applicable to merchants of all sizes.

 

MDR refers to a fee that merchants pay banks or financial technology (fintech) companies processing payments for executing a transaction. 

 

At present, banks and fintech companies bear the payment processing costs incurred to execute transactions made on the real-time payment system.

 

“SPF wholeheartedly supports the recent industry proposal to introduce an MDR on UPI transactions for large merchants,” the association said in a statement.

 

Associations are amping up their demand for an MDR in the backdrop of the Centre cutting down subsidies to promote UPI and RuPay debit card transactions. 

 

In 2024-25 (FY25), the government approved ₹1,500 crore in a scheme for the promotion of low-value BHIM-UPI transactions when made from peers to merchants. This was a substantial cut from the ₹3,268 crore approved in 2023-24 (FY24). 

 

PCI had stated that the allocation, amounting to ₹1,500 crore, covered only a fraction of an estimated “₹10,000 crore annual cost required to maintain and expand UPI services.”

 

“The two-tiered model of MDR ensures balance by exempting small merchants from the proposed MDR framework and preserving the extant zero MDR framework for them,” SPF added.

 

PCI’s proposal implies that a 0.3 per cent MDR structure on UPI would only affect large merchants who can bear a nominal transaction processing cost. Nearly 90 per cent of India’s 60 million merchants will remain unaffected as they fall under the small enterprise category, merchants earning up to ₹20 lakh.

 

Industry observers believe large merchants would be comfortable with a nominal MDR on UPI transactions since these enterprises are used to paying a fee of 1 to 2 per cent on payment instruments such as debit and credit cards.

 

“This distinction will also ensure the long-tail of small value merchants have adequate impetus to ramp up and experience digital payments acceptance ensuring UPI witnesses the next wave of growth,” SPF said. 

 

The startup forum’s members include fintechs and startups such as Razorpay, Cred, Groww, Zerodha, Pine Labs, Oyo, Acko, Swiggy, Dream11, Mobile Premier League, Livspace, Cars24, Cardekho, and Mobikwik.