Nandan Nilekani says MDR would have trended to zero even without government

Infosys Chairman Nandan Nilekani said the merchant discount rate (MDR) would have trended to zero even if the government had not gotten involved and said payment providers in India should focus on budget payments that will help small merchants across the country.

MDR is a fee that is levied by banks on merchants for the payment infrastructure that is provided. The Indian government is mandating zero MDR on payments made through the Ru-Pay card network and the Unified Payment Interface to boost digital payments. But banks and payment service providers say it makes their business model unviable.

"I think the thing is that the MDR is going to trend towards zero, even if the government did not get involved. I think, our work should be budget payments and not online but offline,” Nilekani said at an event hosted by PayTM on Tuesday.


He added that the money for companies would come from the other services they could provide, such as lending.

He said that it was better to think of UPI as a protocol, rather than a product because it has turned payments into a software that can be used by those who were left out of the earlier systems.

“The sky is the limit when it comes to UPI,” Nilekani said. He said the FastTag system, used to pay tolls on Indian highways could be expanded to other payments that are typically required of vehicles.

“Once a vehicle has a tag that is connected to a payment system, you can add congestion challenge, parking charges. You can add many innovations on that,” Nilekani said.