 "Unified Payments Interface, UPI")
A proposed framework to introduce a fee structure for Unified Payments Interface (UPI) transactions that will target large merchants, while ensuring that end users continue to make payments without any merchant discount rate (MDR), is being pursued by the sector, according to sources from the financial technology (fintech) industry.
This comes even as the Ministry of Finance, in a social media post on X last week, clarified that it did not plan to introduce an MDR on UPI payments.
If the proposal is accepted, customers who use UPI for daily transactions will not have to pay any fee to continue transacting on the real-time payments system if the policy on MDR for UPI is notified in the future, sources added.
However, it is expected that large merchants, such as e-commerce platforms, may have to bear the MDR costs only if a fee structure kicks in.
“UPI will only expand if its growth is incentivised by a nominal fee structure. The industry’s ask is to only charge the large merchants. UPI users and small merchants will continue to stay protected, and the payment system will continue to grow,” a person aware of the policy deliberation said.
MDR refers to a fee that merchants pay banks or companies processing payments for executing a transaction.
A potential MDR will open up a monetisation stream and help reduce payment processing costs for fintechs and banks. “Levying an MDR on UPI today has become more of a literacy issue. End users feel they will be charged a fee for transacting, which has not been the case during discussions with stakeholders. More awareness will be required in this regard,” a second industry executive aware of the discussions said.
The industry, however, is seeking greater clarity on how the MDR will be applied to large merchants, including how these merchants are expected to follow the potential fee structure.
Industry executives noted that the ecosystem may have reached a threshold in absorbing the costs of sustaining UPI, and the absence of a monetisation avenue could lead to stagnation in the growth of the real-time payments system. At present, there are more than 450 million users who use UPI.
The Payments Council of India wrote to Prime Minister Narendra Modi in March demanding the introduction of a 0.3 per cent MDR regime on transactions made through UPI at large merchants. If the proposal goes through, nearly 90 per cent of India’s 60 million UPI-accepting merchants will remain unaffected, as they fall under the small enterprise category. These are enterprises with an annual turnover of ₹20 lakh or less.
Only about 5 million earning over ₹20 lakh, categorised as large merchants, according to the payments body, would be liable to pay a nominal fee for processing transactions on India’s real-time payments system, UPI.
