Proposed 0.4% UPI MDR could shift payment costs to India’s largest merchants
NPCI CEO Dilip Asbe said a 0.4% UPI merchant discount rate could recover ₹13,000–15,000 crore in its first year, with 96% of transactions remaining outside the levy. The proposal is designed to concentrate charges on large merchants and fund payment-system investment after six years of zero MDR.
What happened
NPCI CEO Dilip Asbe said a proposed 0.4% UPI MDR could recover ₹13,000-15,000 crore annually, largely from large merchants, while exempting 96% of transactions.
Key facts
- 0.4% proposed MDR
- ₹13,000-15,000 crore potential first-year recovery
- ₹21,000 crore estimated annual payment-system cost
- 96% of UPI transactions outside MDR
- 75% of UPI transaction value outside MDR
- 80% of MDR pool from credit-card-accepting merchants
- 10% of MDR value from merchants not accepting credit cards
- ₹1,000 crore annual digital-payment collections threshold
Why this matters
The proposal could increase the strategic value of payment orchestration, acquiring, and merchant-finance assets that help large retailers manage UPI costs and transaction data.
What to watch
- Finance Ministry, RBI, NPCI, and Department of Financial Services statements on merchant-size, turnover, transaction-value, and sector exemptions.
- Whether the proposal is framed as MDR, a network fee, an acquiring fee, or a government-funded payment-infrastructure mechanism.
- Formal consultation papers, draft circulars, implementation dates, and treatment of online marketplaces, aggregators, fuel, utilities, travel, and government payments.
- Acquirer pricing actions and announcements from major banks, PSPs, payment gateways, and merchant aggregators.
- Large-retailer responses, including checkout steering, minimum order thresholds, changes in cash-on-delivery incentives, or seller fee revisions.
- UPI transaction growth and average-ticket trends after any announcement; a decline in large-ticket UPI share would indicate active merchant payment steering.
- Model UPI acceptance costs by merchant category, annual UPI GMV, average ticket size, and potential exemptions rather than applying 0.4% across all payment volume.
- Open acquirer and PSP negotiations early; large merchants should seek volume-based MDR tiers, fixed-fee alternatives, settlement incentives, and bundled fraud or reconciliation services.
- Review checkout steering rules and economics across UPI, debit cards, credit cards, wallets, cash-on-delivery, and prepaid instruments before changing consumer-facing payment prompts.
- Prepare a supplier and marketplace policy for whether MDR costs are absorbed centrally, allocated to sellers, or reflected in commission and fulfillment pricing.
- Prioritize UPI-linked loyalty, bank-funded offers, and instant-settlement tools that can offset acceptance costs without introducing visible customer surcharges.