RBI Governor: UPI Merchant Discount Rate Talks Premature

Discussions on potentially reintroducing a Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions are premature at this time, according to Reserve Bank of India (RBI) Governor Sanjay Malhotra. The Indian government is currently working on amendments to payment laws.

"It is very premature right now. The government is still carrying out the amendment. The costs have to be paid by someone. We all want this public infrastructure to continue to strengthen and become more efficient. That’s our primary focus now," Malhotra said following a Monetary Policy Committee (MPC) meeting.

The central bank governor further clarified that ultimately, consumers bear the cost of digital transactions in one form or another. "So, it may not be the same consumer. It may be the general economy, which you don’t directly get to see," he added.

The remarks follow a move by the Union government to amend the country's Payment and Settlement Systems Act, 2007. Previously, the law prohibited banks and payment firms from levying MDR on certain digital transactions. The proposed changes would empower the central government to notify specific electronic payment modes, categories of payers and recipients, and transaction thresholds that would be exempt from MDR charges.

Reports suggest the government is considering an MDR of 0.3-0.5% on UPI transactions above Rs 2,000 (approximately $24 USD) for merchants with an annual turnover exceeding Rs 1.5 crore (approximately $180,000 USD). If implemented, this could unlock an estimated revenue pool of Rs 5,000-10,000 crore (approximately $60-120 million USD) for the digital payments industry by fiscal year 2028, with banks expected to be the primary beneficiaries.