UPI to remain free for users; MDR may apply to select merchant transactions

NEW DELHI: UPI transactions will continue to remain free for consumers, while a Merchant Discount Rate (MDR) may be imposed on select merchant transactions, Union Finance Minister Nirmala Sitharaman has clarified.

The clarification came after the Lok Sabha passed an amendment that removes the earlier legal restriction on imposing charges for certain electronic payment transactions. The amendment provides a legal framework for introducing merchant fees on UPI transactions, raising concerns that consumers could eventually be charged for using UPI. However, the government has said any future MDR would apply to businesses and not individual consumers.

PhonePe CEO Sameer Nigam also said consumers would not be charged separately for UPI transactions. The Payments Council of India said UPI would remain free for consumers and that small merchants would be protected from MDR. The government is considering charges on certain higher-value merchant transactions, but the final fee structure has not yet been decided.

MDR to support banks

The Centre has said that allowing charges on certain merchant transactions would help banks and financial institutions generate revenue and enable greater investment in infrastructure, security and other aspects of the digital payments ecosystem.

What is MDR?

Merchant Discount Rate (MDR) is the fee paid by merchants to banks and payment service providers for processing digital transactions. UPI transactions are currently free for merchants, but the proposed changes could allow MDR to be imposed on a limited category of merchant transactions.

Allegations of US pressure

The Congress and the CPI(M) have alleged that the amendment was brought under pressure from the United States.

The sharp decline in card transactions has affected US-based payment companies such as Visa and Mastercard. Google Pay is operated by US-based Google, while Walmart is the largest shareholder in PhonePe. The two platforms are among the dominant players in India's UPI ecosystem.

“Is US President Trump’s pressure behind the amendment?”

— Jairam Ramesh, Congress leader