The Finance Ministry has introduced a Bill in Parliament to amend the Payment and Settlement Systems Act, 2007, which would empower the government to levy a Merchant Discount Rate (MDR) on electronic payment modes, including UPI. This proposal aims to address concerns regarding the long-term financial sustainability of the UPI ecosystem, which has operated under a zero-MDR model since January 2020 to encourage digital adoption.
Industry executives and payment companies argue that reintroducing MDR is necessary to fund infrastructure, cybersecurity, and innovation as the digital payment sector matures. Harsh Vardhan Masta, CEO of PB PAY, stated that implementing MDR on large merchant transactions could create a more resilient ecosystem, while airpay founder Kunal Jhunjhunwala noted that a balanced economic framework is required for the next phase of growth.
Despite the legislative move, everyday consumers are unlikely to face immediate changes to their UPI transactions. The Bill establishes a legal framework for potential charges but does not automatically impose fees on users. Any future implementation of MDR will depend on subsequent government notifications and specific policy decisions.
Today, nearly 88 percent of all digital transactions in India happen through UPI. However, while customers and merchants have enjoyed free transactions, banks, payment service providers and fintech companies have argued that maintaining and expanding the infrastructure comes at a high cost.
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