UPI MDR May Be Set At 40 Bps; Banks Could Get Largest Share: Report

The government is considering imposing a merchant discount rate (MDR) on certain Unified Payments Interface (UPI) transactions, potentially at a rate of 40 basis points (bps), or 0.4% of the transaction value. If implemented, issuing banks could receive 40% of the MDR, while third-party application providers (TPAPs) like PhonePe and Paytm, and acquiring banks would each receive 30%.

At a 40 bps MDR, this would equate to about 16 bps for the issuing bank, and 12 bps for both the TPAP and acquiring bank. The framework is not yet formally notified, and the final MDR, transaction threshold, and merchant eligibility criteria may change. The notification is expected to be released in the coming weeks. The development follows the passage of amendments to the Payment and Settlement Systems Act, 2007, which allows the Centre to designate electronic payment modes that remain exempt from MDR.

The move comes as UPI has become India's leading digital payments platform, and banks and payment companies rely on government incentives to cover the cost of processing transactions.