The Payments Council of India (PCI), an association of of non-banking payment industry players, has submitted a formal letter to the Prime Minister, seeking urgent reconsideration of the zero merchant discount rate (MDR) policy for the Unified Payments Interface (UPI) and RuPay debit card transactions.
While the government has provided financial incentives to offset some of the ecosystem’s operational costs, the letter points out that the Rs 1,500-crore allocation covers only a fraction of the estimated Rs 10,000-crore annual cost required to maintain and expand UPI services. The PCI emphasised that sustaining the country’s digital payments growth would require continuous investments in innovation, cybersecurity, merchant onboarding, compliance, and IT infrastructure.
To address this challenge, the industry proposes the introduction of an MDR for RuPay debit cards for all merchants and reasonable MDR of 0.3% for UPI only for large merchants. This approach aligns with existing MDR structures for other digital payment instruments, such as credit cards (approximately 2%) and non-RuPay debit cards (approximately 0.9%). The PCI assured the government that the introduction of nominal MDR for RuPay debit cards and UPI (for large merchants) would not result in any operational disruption, even in the short term, as these merchants were already accustomed to MDR on other payment modes.
The industry body said approximately 60 million merchants in India accept digital payments, out of which 90% is categorised as small merchants as per the definition of the RBI (turnover Rs 20 lakh and below per annum), with around 5 million merchants categorised as large enterprises.
Enabling MDR for Rupay debit cards and UPI large merchants will ensure sustainable monetisation for service providers without disrupting digital payment adoption at the grassroots level as the merchants already pay MDR for different payment systems. Without MDR, the sustainability of the entire infrastructure is at risk, said the PCI. The introduction of a reasonable MDR for large merchant transactions will allow the industry to continue investing in innovation, cybersecurity, grievance redressal, and merchant support, ultimately ensuring that UPI continues to thrive.