Payments Council requests govt to reconsider Zero MDR policy for RuPay Debit, UPI

New Delhi: Payments Council of India (PCI), an industry body for non-banking payment industry players, on Monday requested the government to reconsider the Zero Merchant Discount Rate (MDR) policy for Unified Payments Interface (UPI) and RuPay debit card transactions.

In a letter addressed to Prime Minister Narendra Modi, the Council highlighted the pressing financial sustainability concerns facing the digital payments ecosystem due to the continued Zero MDR policy, which has been in effect since January 2020.

While the government has provided financial incentives to offset some of the ecosystem’s operational costs, the letter pointed out that the Rs 1,500 crore allocation covers only a fraction of the estimated Rs 10,000 crore annual cost required to maintain and expand UPI services.

Last week, the government approved a Rs 1,500 crore incentive for the promotion of small-value BHIM-UPI (P2M) transactions up to Rs 2,000, a move aimed at benefiting common people and small merchants.

An incentive at the rate of 0.15 per cent per transaction value will be provided for transactions up to Rs 2,000 pertaining to the category of small merchants. For all the quarters of the scheme, 80 per cent of the admitted claim amount by the acquiring banks will be disbursed without any conditions.

PCI emphasised that sustaining India’s digital payments growth would require continuous investments in innovation, cybersecurity, merchant onboarding, compliance, and IT infrastructure.

To address this challenge, the industry proposed the introduction of an MDR for RuPay debit cards for all merchants and a reasonable MDR of 0.3 per cent for UPI only for large merchants.

This approach aligns with existing MDR structures for other digital payment instruments like credit cards (approximately 2 per cent) and non-RuPay debit cards (approximately 0.9 per cent), the council said.

PCI also assured the government that the introduction of nominal MDR for RuPay Debit cards and UPI (for large merchants) would not result in any operational disruption, even in the short term, as these merchants were already accustomed to MDR on other payment modes.

Enabling MDR for Rupay Debit and UPI large merchants will ensure sustainable monetisation for service providers without disrupting digital payment adoption at the grassroots level as the merchants already pay MDR for different payment systems MDR is the lifeline of the digital payments ecosystem, it said.

Without it, the sustainability of the entire infrastructure is at risk, it added.