Introduction
In a move that could reshape the digital payment landscape, Indian authorities are pushing for the introduction of a Merchant Discount Rate (MDR) on UPI transactions. The goal? To invigorate investment in India’s homegrown payments network, the Unified Payments Interface (UPI), and reverse slowing growth. But what does this mean for consumers and merchants? Let’s explore this proposed change.
What is Merchant Discount Rate (MDR)?
The Merchant Discount Rate (MDR) is a small fee charged to merchants for processing payments made through digital platforms like UPI. Under the new proposal, this fee could range from 0.2% to 0.3% of the total transaction value. While this is lower than the fees typically charged for credit card transactions, it would be a significant shift for India’s digital payments ecosystem.
Why is India Considering MDR on UPI Payments?
The Indian government, along with the Reserve Bank of India (RBI) and the payments industry, sees this fee as a critical step toward strengthening UPI’s infrastructure and ensuring the continued growth of the platform. While UPI has revolutionized the way people make payments, its growth has started to slow, and authorities are keen to revive momentum. The introduction of MDR is expected to encourage investment into UPI infrastructure, making it more sustainable in the long run.
Potential Impact on UPI’s Growth
UPI has been a game-changer in India, providing a fast, secure, and affordable method for users to transfer money. However, its rapid growth in the early years is now facing challenges. By introducing MDR, the government hopes to address these hurdles by incentivizing payment firms to innovate and invest in UPI’s technology. The MDR will fund new features, security enhancements, and broader adoption, ensuring UPI remains competitive against other digital payment methods.
Implications for Merchants
Merchants, particularly large ones who process significant UPI transactions, will be directly impacted by the MDR. For them, a fee of 0.2% to 0.3% may seem modest, but it could add up, especially for high-volume businesses. Some merchants may be concerned about the extra costs, but the government assures that the MDR rate will remain competitive compared to credit card transaction fees, which can be significantly higher.
Government’s Role and the Final Decision
The final decision on the introduction of MDR will ultimately lie with Prime Minister Narendra Modi’s office. As India continues its push toward a digital economy, this move would be another key step in modernizing the country’s financial infrastructure. The government’s support for UPI and digital payments has been unwavering, but the MDR charge could still face opposition from merchants who fear it could hinder their profit margins.
Last month, Indians made payments worth 24.7 trillion rupees ($289.65 billion) through the UPI network in March, more than a quarter of which went to merchants.
But the growth rate of UPI payments has slowed, with the value of monthly transactions growing by an average of about 25% in 2025, down from 35% last year.
Walmart-backed PhonePe and Alphabet’s GooglePay currently dominate UPI payments in India, and have previously called for the MDR to be levied on merchant payments. Bot ..
Conclusion
The proposed Merchant Discount Rate could be a pivotal moment for India’s digital payments sector. While it promises to bolster the UPI network’s growth, it also raises questions about the future costs for businesses. As the decision awaits, stakeholders will need to weigh the benefits of enhanced infrastructure against the potential for increased costs. For now, the Indian government’s plan looks like a step toward making UPI a more robust platform for the country’s future digital economy.
Related: The Rise of Digital Payments in India: UPI vs Credit Cards
