The Payment Council of India has submitted a letter to the Prime Minister requesting an urgent reconsideration of the Zero Merchant Discount Rate (MDR) policy for Unified Payments Interface (UPI) and RuPay debit card transactions.
The letter comes amidst the lower MDR subsidy that the government announced for the current financial year. Last week the government decided on Rs 1,500 crore as the subsidy payout for UPI transactions while the industry was expecting around Rs 5,500-6,000 crore.
MDR is the fee that banks collect from merchants at the point of sale for facilitating digital payments. UPI MDR was 30 basis points before it was waived off by the government in 2020. One basis point is one-hundredth of a percentage point.
Payment Council of India represents payment and fintech companies. The organisation has requested the re-introduction of 30bps or 0.3 percent as MDR on UPI payments for large merchants. Large merchants are those with a turnover of over Rs 40 lakh annually.
It has also requested the PM to consider MDR for all Rupay Debit card transactions. According to the organisation, this aligns with the existing MDR structure for credit cards (around 2 percent) and for non-Rupay debit cards (around 0.75-0.9%)
“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 PCI letter said.
Even as the banks and payments industry is grappling with a paltry UPI subsidy for the current fiscal, it has rekindled the hope that the government is likely to let banks charge a fee for UPI payments in the next financial year, according to multiple bankers and payment industry executives, Moneycontrol reported on March 20.
“This year’s UPI subsidy is limited to transactions done at small merchants. This means that Merchant Discount Rate or MDR on UPI for large merchants is likely to be implemented within the next couple of months,” said a senior banker with a private sector bank.
As per the government policy, it provides 15 basis points (bps) of subsidy for UPI transactions below Rs 2,000, the likely subsidy bill would have been around Rs 6,000 crore, indicating a shortfall of Rs 4,500 crore in the current financial year.
UPI or unified payments interface is the country’s most popular digital payments method, facilitating around 85 percent of all online transactions. The platform run by the National Payments Corporation of India (NPCI) sees over 17 billion transactions in a month worth over Rs 24 lakh crore.
In contrast with the government’s stance earlier that UPI is a digital public good and that it will support the growth of UPI, the finance ministry officials have been receptive to the industry proposal of charging 25 bps fee for large merchants with an annual turnover of above Rs 40 lakh.
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