The Payments Council of India (PCI) has urged the government to introduce a Merchant Discount Rate (MDR) for RuPay debit cards and UPI transactions for large merchants. This move aims to ensure the long-term sustainability of India’s thriving digital payment ecosystem.
Understanding MDR and Its Importance
MDR is a fee that merchants pay to banks and payment service providers for processing digital transactions. It is a vital revenue stream that helps cover operational costs, technology investments, and infrastructure upgrades required to maintain digital payment systems.
Currently, MDR is applied to several payment modes:
- Credit Cards – Approximately 2%
- Non-RuPay Debit Cards – Approximately 0.9%
- UPI and RuPay Debit Cards – Zero MDR (as per current government policy)
PCI’s Proposal for MDR on UPI and RuPay Debit Cards
The Payments Council of India has proposed the following:
- Introduce a nominal MDR for RuPay debit cards across all merchant categories.
- Implement a reasonable MDR of 0.3% for UPI transactions, specifically for large merchants.
This recommendation aligns with existing MDR structures for other payment methods, ensuring consistency in digital transaction fees.
Why PCI Advocates MDR Implementation
The PCI’s formal request to Prime Minister Narendra Modi highlights concerns over the zero MDR policy’s impact on the payment ecosystem. While the government has allocated Rs 1,500 crore to offset operational costs, this covers only a fraction of the estimated Rs 10,000 crore annual expenditure required to sustain and expand UPI services.
According to PCI, digital payment providers must consistently invest in:
- Innovation and technology advancements
- Cybersecurity measures
- Merchant onboarding and support
- Compliance and IT infrastructure
Without an MDR structure, sustaining these essential services becomes increasingly challenging. PCI emphasized that introducing MDR for RuPay debit cards and large merchant UPI transactions would provide sustainable revenue without disrupting smaller merchants.
Impact on Merchants
PCI clarified that the MDR proposal would have minimal impact on smaller businesses:
- India has 6 crore merchants accepting digital payments.
- Of these, 90% are categorized as small merchants (turnover below Rs 20 lakh annually), who would remain unaffected by the proposed MDR.
- Approximately 50 lakh merchants qualify as large enterprises, for whom PCI recommends the MDR policy.
As large merchants already pay MDR on credit cards and non-RuPay debit cards, this change would integrate seamlessly into their existing payment practices.
Ensuring Digital Payment Ecosystem Sustainability
The PCI stressed that MDR is the “lifeline” of the digital payment industry. Introducing a modest MDR for large merchant transactions will:
- Support ongoing investments in grievance redressal systems
- Improve merchant support services
- Enable continuous improvements in digital security measures
Ultimately, these efforts will ensure UPI continues to expand securely and efficiently.
PCI’s Appeal to the Government
The PCI has sought Prime Minister Modi’s personal intervention and requested an opportunity to present its case in detail. The industry body reaffirmed its commitment to working closely with the government and regulators to strengthen India’s digital payments framework while ensuring its financial sustainability.
Conclusion
As digital payments grow rapidly in India, ensuring the infrastructure remains secure and sustainable is crucial. PCI’s proposal for a nominal MDR aims to strike a balance between promoting digital payments adoption and supporting service providers. If accepted, this step could play a pivotal role in strengthening India’s digital economy for the future.