Merchant Discount Rate for UPI transactions announced

• All person-to-person transactions to remain free
• MDR will apply to specified merchant transactions above Rs. 2,000

New Delhi: The Union Government yesterday announced the Merchant Discount Rate (MDR) regime for UPI transactions. The new UPI framework introduced will have no impact on any person-to-person transactions. It will continue to remain completely free for all person-to-person transactions, irrespective of the amount transferred.

It is clarified that MDR is neither a tax nor a charge collected by the Government or National Payments Corporation of India (NPCI). It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.

What will remain free

All Person-to-Person Transactions: All Person-to-Person (P2P) UPI transactions will remain completely free, irrespective of the amount transferred. No transaction fee, platform fee or other charge may be imposed on individuals for sending or receiving money through UPI from another person.

Merchant Payments Up to Rs. 2,000: All Person-to-Merchant (P2M) transactions up to Rs. 2,000 will remain free of MDR.

Customers will not be required to pay any charge when making such payments through UPI.

Payments Received by Small Merchants: Small merchants including street vendors receiving up to Rs. 1 lakh per month through UPI QR codes under the Person-to-Person-Merchant (P2PM) category will continue to enjoy zero MDR on all transactions.

This provision will protect street vendors, provision stores and other small businesses from additional payment costs.

What will attract MDR

Merchant Transactions Above Rs. 2,000: An MDR of 0.4% will apply only to P2M transactions above Rs. 2,000.

The MDR will be shared among payment ecosystem  participants, including banks, payment service providers and UPI application providers.

For transactions of Rs. 75,000 and above, the MDR will be capped at Rs. 300 per transaction.

Transactions in Essential Sectors: Transactions above Rs. 2,000 in essential and thin-margin sectors, including railways, telecommunications, insurance, fuel and agricultural inputs, will attract a flat MDR of Rs. 5 per transaction for the merchant.

Capital Market Transactions: Payments relating to mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, capped at Rs. 300 per transaction.

Customers will not pay MDR

According to Ministry of Finance, Government of India, MDR is a charge within the merchant payment ecosystem. It is not a charge on customers making UPI payments.

The Ministry stated that banks have been advised to ensure that merchants do not pass MDR charges on to customers. But the Ministry has not stated how that will be enforced.

UPI application providers are expressly prohibited from imposing platform fees or hidden charges.

MDR Calculations…

Amount paid to Merchant	Applicable Merchant Discount Rate	MDR paid by merchant
Rs. 2,000	-NA –	Rs. 0
Rs. 3,000	0.40 %	Rs. 12
Rs. 50,000	0.40 %	Rs. 200
Rs. 75,000 & above	Fixed Rs. 300	Rs. 300

Any Merchant Discount Rate (MDR) on UPI – will kill the one thing in India which is working like clock work i.e. mobile payments. It’s a regressive step – government should reconsider.

—Ashneer Grover, Co-founder and former Managing Director of BharatPe

I think MDR on UPI was probably inevitable at some point, especially given how widespread UPI adoption has become. It could also lead to more competition, instead of just three apps accounting for more than 95 percent of the market.

— Nithin Kamath, CEO, Zerodha