GUWAHATI: The Payments Council of India (PCI) has reportedly proposed reintroducing the Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) and RuPay debit card transactions. This move, supported by the Startup Policy Forum (SPF), has reignited debates over the future of India’s digital payments ecosystem.
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In 2019, the government removed MDR on UPI and RuPay transactions to promote digital payments. Merchants were previously paying less than 1% as MDR, which banks and fintech firms like Google Pay, PhonePe, and Paytm relied on for revenue. To compensate, the government introduced an incentive scheme, offering a 0.15% incentive per transaction for payments below ₹2,000.
However, the allocation for these incentives has been cut from ₹3,500 crore in FY24 to ₹1,500 crore in FY25, covering only a fraction of the estimated ₹10,000 crore required to maintain UPI infrastructure.
Industry stakeholders argue that sustaining and expanding digital payments requires continuous investment in cybersecurity, merchant onboarding, and IT infrastructure. To address this, they propose a 0.3% MDR on UPI and RuPay transactions for large merchants already paying MDR on other payment methods.
If MDR is reinstated, merchants may pass the cost on to consumers, either by increasing prices or directly charging the fee. Alternatively, to avoid additional costs, businesses may prefer cash transactions, potentially slowing down India’s digitisation efforts.
The proposal comes as UPI continues to dominate the payments landscape, facilitating 16 billion transactions worth nearly ₹22 lakh crore in February 2025, according to the National Payments Corporation of India (NPCI).
