New Delhi: In a move to support banks and payment service providers in managing infrastructure and operational costs, the government is considering reintroducing the Merchant Discount Rate on all the Unified Payments Interface (UPI) payments above Rs 3,000. Sources told media that discussions are underway to allow the Merchant Discount Rate based on transaction value rather than merchant turnover.

This comes as banks and payment service providers have raised concerns about the rising cost of handling high-value digital transactions.

"While small-ticket UPI payments would likely remain exempt, larger transactions could soon carry a merchant fee, reversing the zero-MDR policy in place since January 2020," a source told media.

The UPI accounts for nearly 80 per cent of the retail digital transactions. But the zero Merchant Discount Rate regime has limited incentives for further investment in the sector. The Payments Council of India has proposed a 0.3 per cent Merchant Discount Rate on large merchants for UPI transactions. Currently, the Merchant Discount Rate on credit and debit card payments ranges from 0.9 per cent to 2 per cent, excluding RuPay.

"RuPay credit cards are expected to remain outside the Merchant Discount Rate scope for now," a source told media.

Officials said that a decision on weighing charges on the UPI payments is likely to be made in a month or two after consultations with stakeholders, including banks, fintech firms, and the National Payments Corporation of India. If it is implemented, the policy would mark a shift from incentivising UPI adoption to ensuring long-term sustainability of the digital payments ecosystem.

Source: India Today