The Payments Council of India (PCI) has formally urged the Prime Minister’s Office to reconsider the zero Merchant Discount Rate (MDR) policy on Unified Payments Interface (UPI) and RuPay debit card transactions.This appeal comes as the government reportedly reviews the possibility of reintroducing MDR charges, particularly for large merchants, to alleviate financial pressure on payment service providers and ensure the long-term sustainability of India’s digital payments ecosystem.MDR is a fee charged to merchants by banks or payment service providers for processing digital transactions, typically calculated as a percentage of the transaction value.
Since January 2020, UPI and RuPay debit card transactions have been exempt from MDR as part of the government’s push for digital adoption. In contrast, private card networks like Visa and Mastercard continue to levy MDR, creating an uneven playing field.If reinstated, MDR on UPI and RuPay transactions could help cover the operational costs of digital payments infrastructure. Industry stakeholders argue that the Zero MDR regime has made these costs increasingly unsustainable.In a submission reviewed by CNBC-TV18, PCI highlighted that the ₹1,500 crore allocated for UPI incentives in the Union Budget 2024-25 accounts for only 0.02% of the total UPI transaction value, which stood at ₹246.82 lakh crore in 2024. In comparison, the annual cost of maintaining and expanding the UPI ecosystem is estimated at ₹10,000 crore, leaving a funding gap of ₹8,500 crore, according to PCI.
The council contends that this shortfall is preventing payment firms, banks, and fintech companies from investing in critical areas such as cybersecurity, innovation, and infrastructure upgrades, raising concerns about the long-term viability of the system.To address this, PCI has proposed introducing an MDR for RuPay debit cards for all merchants and an MDR of 0.3% for UPI, applicable only to large merchants—defined as those with an annual turnover exceeding ₹20 lakh.This rate is significantly lower than the MDR applied to other payment methods, such as 0.9% on non-RuPay debit cards and 2% on credit cards. The proposal suggests that small merchants continue to benefit from Zero MDR, striking a balance between sustainability and the goal of promoting digital payments among smaller businesses.PCI asserts that a sustainable MDR model is essential for expanding digital payments and integrating the next 500 million Indians into the formal financial system. It argues that such a framework would enable continued investments in security, merchant expansion, and customer protection, ensuring India maintains its global leadership in digital payments.Speaking to CNBC-TV18, Vishwas Patel, Chairman of Payments Council of India and Joint Managing Director at Infibeam Avenues, argued that expanding digital payments, especially in rural areas, requires financial incentives. With UPI dominating 80% of transactions but having zero MDR (merchant discount rate), there is little motivation for payment industry players to invest in deeper penetration. “The way the payment industry works, there is a cost of plastic for the issuance of RuPay debit card, there is a cost for the entire program. When we go to the hinterlands of the country, there is cost of marketing, training the merchants and getting him to use the cashless kind of digital payment. So, if you want to keep increasing the penetration there has to be money. Currently almost 80% of the transactions are UPI and when there is zero money to be made, then there is hardly any incentive for any of our members at PCI to have that motivation to go down to the hinterlands and deploy,” Patel said.He suggested maintaining zero MDR for small merchants (who make up 90% of UPI-accepting businesses) while introducing a controlled 0.3% MDR for large merchants. According to Patel, large merchants already pay higher MDR for credit card transactions and argues that a small MDR on UPI payments wouldn’t be a burden. “There are total 6 crore merchants who are accepting UPI across the country as of today. Out of the 6 crore, 90% or more are the smaller merchants. We are saying that continue zero MDR and the incentives for the smaller merchants. So out of 6 crore, almost 5.5 crore are smaller merchants and they are not going to get affected by our suggestion. Our suggestion is that 30 bps, very controlled MDR is for the large merchants as defined by RBI. 10% of the large merchants which are there today are anyways accepting credit cards and debit cards, and for credit cards, they are paying 1.8% MDR. So, if they were to pay 0.3% on ₹100 transaction, they get back ₹99.7, and they pay 30 paisa or 30 bps on a transaction, I don’t think it will be a problem for the large merchants,” Patel said.He further clarified that the proposals made by Payment Council of India will not impact the consumers. “Whatever we are proposing, there is absolutely nothing, that the consumer has to pay more while paying through either UPI or RuPay debit card.”The Payments Council of India (PCI) is an industry body representing digital payment companies in India. It operates under the Internet and Mobile Association of India (IAMAI) and works to promote the growth of digital payments.
