The use of UPI and RuPay debit cards is rapidly increasing in India. Currently, there are no fees (MDR) on transactions made through these platforms. MDR, or Merchant Discount Rate, is a charge that merchants pay to their banks for processing digital payments. The government had waived this fee, but now it is considering reintroducing it.
MDR to Be Imposed on Large Merchants?
According to a report published in Economic Times, the banking industry has submitted a proposal to the government. The proposal suggests that merchants with an annual turnover of over ₹40 lakh should be subject to MDR again. The government is currently reviewing this proposal. This means that small merchants with an annual turnover of less than ₹40 lakh will continue to be exempt from MDR.
Different Rates for Large and Small Businesses
As per the proposal, the government may introduce a tiered system, where larger merchants will have to pay higher charges, while smaller merchants will either pay a lower fee or none at all. This ensures that small businesses remain unaffected, while large merchants—who process digital payments worth lakhs or crores every month—will bear the cost.
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Why Is MDR Being Reintroduced?
Banks and payment companies argue that large merchants already pay MDR on Visa, Mastercard, and credit card transactions. So, why should UPI and RuPay be exempt? When the government eliminated MDR in the 2022 budget, the aim was to promote digital payments. However, now that UPI has become the most widely used payment method, the government may decide to recover costs from large merchants instead of bearing the expense itself.
MDR Is Crucial for Payment Companies
Payment companies, which are now regulated under the government’s payment aggregator rules, say that compliance costs have risen significantly. If MDR is not reinstated, their business models may become unsustainable. These companies need substantial investments in payment processing, cybersecurity, technology upgrades, and customer service. Without fees, it will be difficult for them to cover these expenses.