Zero MDR Policy on UPI: Government Draws a Hard Line
The Indian government has put to rest the growing rumors around Merchant Discount Rate (UPI) charges possibly making a comeback. Over the past week, the payments industry buzzed with the idea that MDR—those small charges taken from merchants for digital payments—might soon return, sparked by a Payments Council of India (PCI) proposal targeting bigger retailers. This suggestion quickly caught attention, raising questions about costs for both merchants and everyday consumers.
But the Ministry of Finance wasn’t having any of it. Their statement left no room for confusion: reports of the government considering MDR on UPI transactions are “false, baseless, and misleading.” The ministry explained that their focus is keeping digital transactions simple and affordable—not just for businesses, but for everyone, especially those stepping into the world of online payments for the first time.
Zero-MDR isn’t just about waiving fees for merchants. It’s designed to keep India’s digital payment landscape open and accessible, no matter the size of the shop or the user’s experience. UPI, after all, has exploded in popularity—just last month, Indians made a staggering 18.68 billion UPI-based transactions, a leap of 33% compared to the previous year.
Industry Strain and the PCI Proposal
Of course, there’s more going on behind the scenes. Payment service providers—think banks and digital wallet companies—are feeling the pinch. It’s expensive to maintain this vast digital infrastructure, and the industry argues that current government incentives, totaling about ₹1,500 crore, don’t come close to the real maintenance cost, estimated around ₹10,000 crore. The PCI, representing these companies, floated a 0.3% MDR on big retailers as a possible way out.
But a move like that, according to folks like Bernstein’s financial analyst Pranav Gundlapalle, risks derailing India’s digital momentum. India leads the world in real-time payment volumes, holding 48.5% of the global share. Introducing new fees could send people—and especially small merchants—back to cash, undoing years of digital progress and denting the pace of financial inclusion across rural areas.
The Ministry of Finance remains adamant: if digital payments are to remain a cornerstone of India’s economic future, they can’t become less appealing than cash. The zero-MDR policy is here to stay, at least for now. With UPI volumes soaring and most of the world watching India’s digital experiment, the big worry for the payments sector is how to keep growing while balancing the books. For now, the government seems willing to shoulder that challenge rather than risk reversing the digital revolution underway.
