Restore MDR on UPI and RuPay transactions, banks, payment firms ask Centre: Report

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Banks and digital payment platforms have urged the Centre to reconsider Merchant Discount Rate (MDR) on online transactions done via Unified Payments Interface (UPI) and RuPay debit cards which was waived in 2019.

Industry body, the Indian Banks’ Association (IBA) and payments forums met with officials from the Finance and IT Ministries as part of pre-Budget consultations and asked for MDR on UPI and RuPay transactions to be restored, sources told The Economic Times.

An executive told the paper that restoring MDR fee was “a representation made to the Finance Ministry as part of the budget consultation process.”

Moneycontrol could not independently verify the report.

The proposal sources said include “discounted MDR on RuPay to make it competitive with Visa and Mastercard” bank cards, and flat, “slab-based MDR on UPI transactions.”

Another source said that their demands “assume urgency” because the COVID-19 pandemic has “significantly increased digital transaction volumes” which banks are unable to cope with and “due to lack of incentives to upgrade or invest, transaction failure rates on UPI are surging.”

MDR was levied on merchant processing transactions and was shared between the issuer bank, acquiring bank and fintech partner equally – who paid forward 10 percent switching fee to networks such as the National Payment Corporation of India (NPCI). It was removed for UPI and RuPay debit card transactions in 2019, to incentivise small merchants to adopt digital payment methods.

The source however said that the waiver has “put NPCI under competitive disadvantage against international rivals like Visa and Mastercard,” as banks have no incentive to issue RuPay cards instead of ones where they can accrue charges from merchants.

“There is no incentive for banks … they have gone slow in replacing the old chip and pin cards and issuing new cards as they don't want to add to the financial hit which was earlier estimated to be nearly Rs 3,000 crore when MDR was withdrawn,” a second official said.