Union finance minister Nirmala Sitharaman has clarified that the Merchant Discount Rate (MDR) on UPI transactions above Rs 2,000 will not be charged to consumers and is not a government levy. The cost will instead be borne within the payment ecosystem by traders, merchants, banks and other service providers involved in processing the transaction.
Sitharaman said the MDR is not a tax, cess or surcharge and that the collections will not go to the Consolidated Fund of India. “This is not a government issue,” she said, rejecting claims that the new framework would directly impose an additional charge on customers using UPI.
The minister explained that the charge compensates entities providing payment services, including the National Payments Corporation of India (NPCI), payment aggregators, service providers, point-of-sale machine providers and merchant banks. Transactions below Rs 2,000 will not attract the charge for merchants under the framework described by her.
“The merchant is the one who is going to pay,” Sitharaman said. She added that the charge could not be passed on to customers and would not appear as an additional cost on their bills. The clarification follows speculation over how businesses might respond to the newly announced MDR structure, particularly in high-value merchant transactions.
NPCI managing director and chief executive officer Dilip Asbe has said that the potential for consumers to ultimately bear the cost is limited to around 10% of the overall value on which MDR is collected. He said around 75% of the overall UPI transaction value falls outside the charging framework.
UPI currently handles transaction value of about Rs 30 lakh crore, while merchant payments account for approximately Rs 6-7 lakh crore, according to figures cited by Asbe. The framework is primarily applicable to transactions above Rs 2,000. Asbe said that around 75% of merchants using QR codes had not recorded a transaction above that threshold, meaning the framework would not affect them directly.
The MDR collections that do arise are concentrated among larger businesses. About 80% of the MDR collected comes from businesses with annual gross merchandise value and digital payment collections exceeding Rs 1,000 crore, Asbe said. These companies already accept credit cards and pay higher charges for those transactions, and NPCI considers them less likely to transfer the UPI cost to customers.
Businesses with annual turnover of Rs 1 crore and above could account for another 10% of MDR collections, according to Asbe. He said these businesses also commonly accept credit cards and may not necessarily pass the cost to consumers. The remaining 10% represents the segment where the possibility of consumers being charged is considered higher.
Asbe said banks, NPCI, acquiring institutions and payment aggregators would need to ensure that charges were not passed back to consumers. He also said UPI transaction value is expected to rise by around 10% this year, while transaction volumes could grow by 15-17%.
He attributed the slower expected growth partly to reduced investment by ecosystem participants after the first five to six years of heavy investment in UPI infrastructure. The absence of a revenue model had led participants to scale back investment, while education, awareness and user trust would also influence adoption. NPCI’s longer-term objective is to expand UPI usage to one billion users and build infrastructure that can support wider access to credit, investments and insurance.
