Around three-fourths of India’s merchants accepting digital payments have never recorded a UPI transaction of more than Rs 2,000. As a result, they will remain insulated from the newly introduced merchant discount rate (MDR), National Payments Corporation of India (NPCI) managing director and chief executive officer Dilip Asbe said on Thursday.
Speaking at the SBI Banking and Economics Conclave, Asbe said the objective of introducing MDR was not to fully recover the cost of running UPI, but to generate enough revenue for banks and payment companies to continue investing in the ecosystem.
“While we cannot fully recover the cost, at least reasonably recover, so that it kind of incentivises market players to reinvest back and grow UPI,” Asbe said.
Revenue Generation
NPCI expects the new MDR framework to generate Rs 13,000-15,000 crore in its first year, against an estimated annual cost of around Rs 21,000 crore for running the UPI payments infrastructure.
Asbe said about 80% of the total MDR value collected would come from businesses with annual gross merchandise value (GMV) of more than Rs 1,000 crore. Of the remaining 20%, half would come from merchants with annual GMV exceeding Rs 1 crore.
These businesses, accounting for 90% of the MDR value, largely already accept credit cards and pay charges on such transactions, making it unlikely that they would pass on the UPI MDR to customers, he said.
“The real risk of a consumer getting charged is just 10% of the overall value,” Asbe said. NPCI, along with banks, acquiring banks and payment aggregators, would work to ensure that merchants do not pass these charges on to consumers, he added.
Under the new framework, an MDR of 0.4% will apply to person-to-merchant (P2M) UPI transactions above Rs 2,000, subject to a cap of Rs 300 for transactions of Rs 75,000 and above.
Asbe said 96% of UPI transaction volume and 75% of transaction value would remain outside the MDR framework.
NPCI also does not expect the introduction of MDR to have a significant impact on UPI transaction volumes or value, since the bulk of the collections will come from merchants that already accept credit cards and incur MDR on those transactions.
“We believe that the price is already embedded with the charge. So, the merchants will not pass back the charges to the customer,” Asbe said on the sidelines of the event.
The introduction of MDR is also aimed at reviving investment in the UPI ecosystem, which Asbe said had slowed in recent years in the absence of revenues for market participants.
“The initial five years, six years investments which we saw the players were making in the ecosystem kind of slowed down… because there was absolutely no revenue back in the system,” he said.
Growth Expectations
NPCI does not attribute the recent moderation in UPI growth solely to the high-base effect. UPI transactions are expected to grow around 10% in value and 15-17% in volume this year, rates that Asbe said were below NPCI’s expectations.
The new MDR framework also provides for a fund to support smaller merchants and expand UPI acceptance. Asbe said the corpus could reach around Rs 3,000 crore over three years, about three times the size of the Payments Infrastructure Development Fund.
Separately, NPCI is working with the Reserve Bank of India on an agentic payments protocol for UPI and could launch the facility in the next few months, subject to regulatory approvals.
The protocol would allow artificial intelligence agents to initiate payments within limits and mandates authorised by users, with NPCI monitoring the actions of such agents.