Free UPI Transactions May End as MDR Charges Loom Over Digital Payments

India's most popular digital payment system, Unified Payments Interface (UPI), could soon see a major shift as the Payments Council of India (PCI) has proposed reintroducing the Merchant Discount Rate (MDR) on UPI and RuPay transactions. This move comes amidst concerns over financial sustainability due to reduced government subsidies.

Key developments:

- The PCI, representing over 180 non-banking payment companies, has urged the government to reinstate MDR to ensure a sustainable revenue model for maintaining and expanding UPI infrastructure.  
- MDR, a fee paid by merchants to banks for processing digital payments, has been zero for UPI and RuPay transactions since 2020 to promote digital adoption.  
- The government subsidies for UPI operations have been drastically reduced from ₹3,500 crore in FY24 to ₹1,500 crore in FY25, while the industry estimates annual maintenance costs at ₹10,000 crore.  
- If implemented, large merchants may face an MDR of 0.3% on UPI and RuPay transactions, potentially leading to higher product prices or a shift back to cash transactions.  

While the proposal aims to ensure financial sustainability, it has sparked debates about its impact on digital adoption and affordability. Stakeholders are closely monitoring the government's response to this critical issue.

Sources: Trak.in, Economic Times, Moneycontrol, Fortune India, MSN News.

 

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