Business & Finance
Industry Leaders Support UPI Merchant Transaction Charges for Ecosystem Sustainability
Co-founders of PhonePe and MobiKwik have expressed support for the introduction of Merchant Discount Rate (MDR) charges on certain Unified Payments Interface (UPI) transactions. This development comes as the debate around these charges continues among industry stakeholders.
Upasana Taku, co-founder of MobiKwik, described the move as a “very positive step” aimed at enhancing the sustainability of the payments ecosystem. She noted that the growth of UPI over its ten-year history has led to increased infrastructure maintenance costs, which have burdened banks and payment companies. Taku highlighted that the new charges do not impact customers, as person-to-person transactions remain free. Additionally, small merchants with monthly sales up to ₹1 lakh are exempt from these charges.
The MDR of 0.4% will apply to large merchants for high-volume payments, such as flight bookings or online shopping, and is considerably lower than the 1.6–1.8% typically associated with credit card transactions. Taku stated that the revenue generated from MDR will contribute to the continued growth of UPI and the broader payments industry, while also supporting the banks and payment companies responsible for maintaining the infrastructure.
Sameer Nigam, Founder and CEO of PhonePe, also welcomed the decision, emphasizing that the revenue generated will help the industry cover operational costs. He pointed out that with 70–80 crore UPI transactions occurring daily, the 0.4% MDR on merchant-related UPI transactions exceeding ₹2,000 will provide revenue for reinvestment and further growth. Nigam mentioned that this issue had been previously raised with the government and the Reserve Bank of India (RBI), noting that India was unique in not having MDR on UPI transactions among over 200 countries with digital payment systems. He believes that customers will be the primary beneficiaries, as UPI remains free for them, ensuring continued accessibility while fostering a sustainable and growing ecosystem.
Nigam also highlighted that approximately 60 lakh merchants already pay MDR on RuPay credit cards, Visa cards, and Mastercard transactions, with typical credit card MDR rates ranging from 1.5% to 2.5%. He stated that the 0.4% MDR for UPI transactions is among the lowest globally.
The government has clarified that UPI payments between individuals, regardless of the amount, will remain free. Payments to merchants up to ₹2,000 are also exempt from charges. Under the new framework, merchants accepting UPI payments above ₹2,000 will incur a fee, but customers will not be charged. For transactions of ₹75,000 or more, the MDR will be capped at ₹300 per transaction. The government has advised banks to ensure that merchants do not pass these MDR costs on to customers. Small merchants are also protected from additional payment costs through exemptions.