India Discusses Potential Discounts for Swift Payment Service Users
In a significant development, the Indian government is exploring the possibility of introducing a Merchant Discount Rate (MDR) for large UPI transactions, aiming to sustain investment in payment infrastructure and support payment firms. This move comes after a long period during which the MDR was waived off to promote wider UPI adoption.
Since 2019, the Indian government had waived the MDR on UPI transactions to boost adoption among merchants and consumers, resulting in UPI becoming the world's largest real-time payment system by volume. However, the government subsidy to offset UPI infrastructure costs was sharply reduced in the financial year 2025, causing a funding gap for stakeholders.
To address this financial gap, industry experts and authorities are proposing reintroducing a modest MDR on merchant UPI transactions, specifically targeting large merchants for sustainability. The updated MDR for UPI transactions in India is currently being considered in the range of 0.2% to 0.3% for large merchant transactions.
This proposed MDR is expected to have a significant impact on the digital payments landscape in India. UPI remains the dominant method for digital payments, with over 185.85 billion transactions made in FY25, an increase of approximately 42% over the previous year. The total value of UPI payments reached 260 trillion rupees during FY25.
On the other hand, merchants currently pay a Merchant Discount Rate of two to three rupees for every 100 rupees spent when using credit cards, providing an edge to UPI over credit card payments for consumers. It is important to note that the government's plan to introduce a tiered pricing system for credit card payments is separate from the offer of direct discounts for UPI users.
The National Payments Corporation of India (NPCI) has mandated that transaction times for UPI be reduced from 30 seconds to 15 seconds, starting June 16. A stakeholder meeting is expected next month to finalize the decision on the reintroduction of MDR for UPI transactions. The government plans to consult e-commerce platforms, payment service providers, the NPCI, Department of Financial Services (DFS), and various consumer rights groups before finalizing the decision.
In conclusion, the Indian government's consideration of reintroducing a merchant discount rate for large UPI transactions marks a shift in policy after several years of waiving MDR to promote digital payments. This move is aimed at addressing the funding gap caused by the reduction in government subsidies and sustaining investment in payment infrastructure.
Businesses in India may need to prepare for the potential introduction of a merchant discount rate (MDR) for large UPI transactions, as the Indian government contemplates this move to address a financial gap created by reduced government subsidies. This proposed MDR could have a profound impact on the digital payments landscape, particularly for large merchants.
