Govt Mulls Bringing Back Merchant Fees On UPI And RuPay Payments: Report

The government may introduce a tiered pricing system for UPI transactions, where larger merchants would incur higher charges, while smaller merchants would pay a lower fee, as per the report

Merchants were previously required to pay under 1 per cent of the transaction amount as Merchant Discount Rate (MDR) to banks

Source : Paytm

The government is reportedly considering a proposal to reintroduce merchant charges on Unified Payments Interface (UPI)-based transactions and RuPay-powered debit card payments, according to The Economic Times report citing two senior bankers familiar with the matter.

These charges, known as the Merchant Discount Rate (MDR), are paid by merchants to banks for processing real-time payments. Currently, no MDR is applied to UPI transactions and RuPay debit card payments, which are facilitated by the National Payments Corporation of India (NPCI), the country’s retail payments network.

“A formal proposal to bring back MDR on UPI payments for large merchants was sent to the Union government by the industry (banks) and now the concerned departments are considering it positively,” one of the bankers explained. According to the proposal, the fee could be reintroduced for merchants with an annual turnover exceeding Rs 40 lakh as per GST records, the banker added.

Different For Different Traders

The government may introduce a tiered pricing system for UPI transactions, where larger merchants would incur higher charges, while smaller merchants would pay a lower fee, the banker explained. UPI transactions would remain free for merchants with an annual turnover of less than Rs 40 lakh, he added in the report.

“The logic is that if large merchants who have card machines are paying MDR on other payment instruments like Visa and Mastercard debit cards and all forms of credit cards, then why can they not pay charges for UPI and RuPay debit cards?” said the second banker in the report.

Merchants were previously required to pay under 1 per cent of the transaction amount as Merchant Discount Rate (MDR) to banks, until the government removed this fee in the FY22 budget to encourage the shift toward digital payments. Now that UPI has become the dominant retail payment method and RuPay has gained widespread adoption, industry executives believe the blanket waiver could be discontinued.

Industry insiders noted in the report that large retail merchants typically receive over 50 per cent of their transactions via cards, meaning that a fee on UPI transactions would not be overly burdensome.