Talks On MDR On UPI At A Premature Stage: RBI Governor Sanjay Malhotra

Amid heated debate over the imposition of merchant discount rates (MDR) on UPI transactions, the Reserve Bank of India’s (RBI) governor Sanjay Malhotra has informed that talks of the same are at a premature stage right now. 

“It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen. Let’s wait and watch for further developments on this,” RBI governor Sanjay Malhotra reportedly said during the RBI’s post-money policy press conference.

The comments come shortly after the union government tabled a proposal to amend the Payment and Settlement Systems Act (PSSA), 2007, in a bid to introduce the additional fee on UPI transactions. 

The changes would enable the Centre to directly notify which means of electronic payments are to remain exempt from MDR charges.

As per reports, the government is expected to levy a 0.25% to 0.4% MDR on transactions above ₹2,000 UPI transactions made to business. Person-to-person (P2P) transactions are likely to remain exempted. 

Brokerage firm Jefferies estimates that MDR of 15-30 basis points (bps) on such transactions could generate a revenue in the range of ₹5,000-₹10,000 Cr by FY28.

On this, Malhotra pointed out that consumers ultimately pay for the transactions in some way or other. “So, it may not be the same consumer. It may be the general economy, which you don’t get to see directly,” he noted.

For context, MDR on UPI existed between April 2016 until January 1, 2020, when the Indian government made P2M UPI transactions completely free (zero MDR) under Section 10A of the Payment and Settlement Systems Act.

Since then,  the payments industry supports bringing back MDR on UPI, citing that processing billions of transactions under a zero-fee model is financially unsustainable for banks and tech providers. 

For instance, the Confederation of All India Traders (CAIT) rendered its support for a nominal MDR on higher-value UPI transactions if proposed by the government.

CAIT secretary general Praveen Khandelwal mentioned that any proposal should be viewed only after its provisions are made public.

Previously, Payments Council of India pushed for a 0.3% MDR on large-merchant UPI transactions, and the Parliamentary Standing Committee on Finance has recommended a phased reintroduction. 

When implemented, enterprise-focused payment aggregators are expected to reap the most benefits directly where the client base sits over and above the annual turnover of ₹1 Cr. According to the experts, aggregators stand to monetise a majority of their transaction volume that currently generates no revenue at all. 

At this point, UPI transaction volume saw a 4% monthly growth to 23.66 Bn in July, according to data released by the National Payments Corporation of India (NPCI), while the total transaction value increased 3% M-o-M to ₹29.88 Lakh Cr during the month under review.

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