UPI and RuPay Payments May Soon Attract Merchant Fees – Details Here

The Indian government is reportedly considering the reintroduction of merchant charges on Unified Payments Interface (UPI) transactions and RuPay debit cards, according to a report by a new agency citing two senior banking officials.

Possible Reintroduction of MDR on UPI and RuPay Transactions

Currently, merchants are exempt from paying a Merchant Discount Rate (MDR) on UPI and RuPay transactions, as these payment systems are managed by the National Payments Corporation of India (NPCI).

However, government officials and banking representatives are discussing potential changes that could introduce MDR charges for large businesses, while keeping transactions free for small and medium-sized enterprises (SMEs).

A senior banker explained, “The logic is that if large merchants who have card machines are paying MDR on other payment instruments like Visa and Mastercard debit cards and all forms of credit cards, then why can they not pay charges for UPI and RuPay debit cards?”

Tiered Pricing System Under Consideration

One of the proposals includes a tiered pricing structure, where MDR fees would be higher for large businesses but significantly lower or exempted for smaller merchants. This approach aims to create a balanced ecosystem where financial institutions can recover infrastructure costs while ensuring continued digital payment adoption across the country.

How MDR Works and Why Was It Removed?

Before 2022, merchants were required to pay an MDR of less than 1% on UPI and RuPay debit card transactions. This fee was split between banks, payment processors, and NPCI. However, in the Union Budget 2022, the government decided to remove MDR charges to promote the adoption of digital payments.

Since then, UPI has become India’s most popular payment method, processing over 11 billion transactions monthly, while RuPay has gained substantial market share among debit card users.

Impact on Retailers and Businesses

Industry experts suggest that big retail merchants already handle over 50% of their transactions through cards. Therefore, a small fee on UPI payments is unlikely to have a significant impact on their overall revenue. However, smaller merchants, who rely heavily on UPI for low-cost transactions, may need additional incentives to maintain digital payment adoption.

Government's Focus on Digital Payment Growth

While the government is keen on ensuring financial institutions recover operational costs, it also wants to safeguard small businesses and maintain the momentum of digital transactions. A potential compromise could involve government subsidies or incentives for small businesses while allowing MDR on transactions exceeding a certain threshold.

Conclusion

The potential reintroduction of Merchant Discount Rate (MDR) on UPI and RuPay transactions could mark a significant shift in India’s digital payment landscape. While large businesses may adapt to the new charges, small merchants and startups could face challenges if they are required to pay transaction fees.

However, the government is likely to implement a tiered pricing structure, ensuring that small businesses remain unaffected or pay minimal charges to maintain the rapid adoption of digital payments.

With UPI processing over 11 billion transactions per month, any change in MDR policies could influence merchant behavior, bank revenue models, and overall digital payment growth.

While the move aims to balance financial sustainability and digital expansion, policymakers must ensure that India’s cashless economy continues to thrive without discouraging smaller merchants.

The final decision on MDR for UPI and RuPay is expected soon, and its impact will be closely watched by businesses, banks, and consumers alike.