Proposed 0.4% UPI MDR could recover Rs 15,000 crore in first year: NPCI chief

The proposed 0.4% merchant discount rate on Unified Payments Interface transactions could recover Rs 13,000-15,000 crore of the payment system’s estimated Rs 21,000-crore annual cost in its first year, while leaving most transactions free, National Payments Corporation of India chief executive Dilip Asbe said at the 13th SBI Banking and Economics Conclave.


The NPCI chief also said that the merchant discount rate on UPI transactions is unlikely to impose a significant new burden on small businesses or customers, as about 80% of the MDR pool would come from merchants that already accept credit cards and pay similar charges. Asbe said 96% of UPI transaction volumes and 75% of transaction value would remain outside the MDR framework. Only around 10% of the MDR value would come from merchants that do not currently accept credit cards, he said, adding that the ecosystem must ensure these charges are not passed on to customers.


“While we cannot fully recover the cost, we said at least reasonably recover so that it incentivises market players to reinvest and grow UPI,” Asbe said. “We thought Rs 13,000-15,000 crore could be a reasonable value in year one to recover from the ecosystem.”

Asbe said reinstating charges after six years of zero MDR would cause some pain but had become necessary as investments and UPI growth slowed. “The initial five-six years of investments which we saw players making in the ecosystem kind of slowed down because there was absolutely no revenue back in the system,” he said.

About 80% of the MDR pool would come from businesses recording more than Rs 1,000 crore in annual digital-payment collections, which already accept credit cards and pay higher charges, Asbe said.

“The price is already embedded with the charge,” he said. “The majority part of the MDR will come from existing merchants who are paying MDR for credit cards.”

Only around 10% of MDR collections would come from merchants that do not accept credit cards, creating a limited risk of the charge being passed on. “The remaining 10%, yes, there is a possibility,” Asbe said. “The banks, NPCI, acquirers and payment aggregators have to work towards ensuring that the charges are not passed back to customers.”

“Any change will create some pain,” he said. “As of now, we don’t foresee any major impact on the volumes or value.”

Asbe said the revenue would fund capacity, cybersecurity, artificial intelligence and quantum-proofing. NPCI has already utilised much of its annual technology budget as the cost of some servers rose fivefold to about Rs 1 crore, he said.

Five per cent of MDR collections would also be channelled into a small-merchant fund that could reach about Rs 3,000 crore over three years. This could fund around 20 million soundboxes and help double the number of card-accepting merchants to 10 million.

NPCI is also preparing to launch its agentic-payments framework over the next few months and is in discussions with the Reserve Bank of India for the necessary regulatory approvals, Asbe said.

“In the next few months, we should be able to launch our own agentic payments,” Asbe said. He added that agentic commerce could help smaller merchants become discoverable to a wider customer base without having to depend on large platforms that charge commissions of 20-30%, although NPCI would adopt a cautious approach under the RBI’s guidance.