Government moves closer to restoring MDR on UPI merchant payments

New Delhi: The government on Tuesday introduced amendments to the Payment and Settlement Systems Act in Parliament, moving closer to restoring merchant discount rates (MDR) on Unified Payments Interface (UPI) transactions.

FM Nirmala Sitharaman introduced the Bill in the Lok Sabha, proposing to remove a legal provision that bars banks and payment service providers from levying MDR on specified electronic payment modes.

Also Read: India paves way for return of merchant fees on digital payments


MDR is the fee a bank charges a merchant for accepting digital payments through UPI, credit cards and debit cards. The government scrapped MDR on UPI transactions in January 2020 to encourage digital payments.

Brokerage Jefferies said the amendments would empower the Reserve Bank of India (RBI) to determine MDR on UPI transactions, paving the way for charges on person-to-merchant (P2M) payments above ₹2,000.

The brokerage expects an MDR of 15-30 basis points on transactions above ₹2,000, although the proposal still requires parliamentary approval, followed by the actual change in MDR and industry negotiations on MDR sharing. It could create a significant revenue opportunity for payment platforms such as Paytm and Pine Labs, Jefferies said. It estimates the move could generate a ₹ 5,000-10,000 crore revenue pool for the payments ecosystem by FY28.

Also Read: Payment Bill rekindles MDR hopes for large-value UPI

While MDR would be shared among issuing banks, merchant acquirers, UPI handle providers and payer banks, payment platforms could retain five to 10 basis points, depending on the services they provide.

The move comes as UPI companies struggle to build profitable payments businesses despite the platform's rapid growth.