The National Payments Corporation of India (NPCI)-led committee will likely decide on the fee for UPI payments above Rs 2,000 in a couple of days, even as RuPay debit card transactions will remain free regardless of the transaction value.
Sources indicated that the merchant discount rate (MDR) could be around 0.3%. The rate is likely to be announced this week or in a couple of days, they said.
On Monday night, the Department of Financial Services issued a gazette notification specifying the electronic payment modes that would continue to receive statutory protection from charges.
“In exercise of the powers conferred under Section 10A of the Payment and Settlement Systems Act, 2007 (51 of 2007), the central government hereby specifies the following electronic modes of payment, namely: (i) debit card powered by RuPay; and (ii) Unified Payments Interface (UPI) transactions up to Rs 2,000. “No bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using the electronic modes of payment specified in the paragraph above,” the notification said.
While deciding to keep UPI transactions of up to Rs 2,000 free of cost, the government seems to have decided not to mandate a proposed threshold that would keep small businesses with annual turnover of up to Rs 1.5 crore outside the ambit of MDR, irrespective of the transaction value, due to operational difficulties. The fast pace of growth in UPI transactions will make it difficult to monitor the thresholds.
MDR is a fee paid by businesses to payment processors for accepting digital payments. The government has assured that UPI transactions will remain free for consumers.
An MDR of up to 0.3% of the transaction used to be applied to UPI person-to-merchant transactions until December 2019. Zero MDR was introduced in January 2020 to accelerate digital payment adoption and encourage a shift from cash to digital payments. The government subsequently introduced an incentive scheme to support banks and other ecosystem participants and encourage digital payments by providing an incentive equivalent to 0.15% MDR on UPI transactions up to Rs 2,000.
With a massive jump in UPI transactions since the Covid-19 pandemic, banks and other payment intermediaries have ramped up investment in payment infrastructure, leading to industry calls for the restoration of charges to make the system sustainable.
Reintroduction of MDR at 0.3% on UPI transactions above a threshold would still be much lower than the prevailing MDR of 1-3% on credit cards and up to 0.9% on debit card transactions.
The Parliamentary Standing Committee on Finance recently flagged the sharp mismatch between the Rs 2,000 crore budgetary allocation for 2026-27 and the industry’s estimated operational cost of Rs 20,700 crore for running UPI. It said the allocation covered barely 10% of actual operational costs. The estimate is based on an operational cost of Rs 1.38 per transaction and around 150 billion P2M (person-to-merchant) transactions recorded last year.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
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