UPI may fetch Rs 15,000 crore with 0.4% MDR

The proposal to introduce a 0.4% merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions could potentially recover between Rs 13,000-15,000 crore from India's annual payment system cost of Rs 21,000 crore in its first year, according to Dilip Asbe, CEO of the National Payments Corporation of India (NPCI). Speaking at the 13th SBI Banking and Economics Conclave, Asbe stated that most transactions would remain free, with only 10% of the MDR value coming from merchants that do not currently accept credit cards.

The MDR would primarily be collected from businesses processing over Rs 1,000 crore in annual digital payments, many of whom already accept credit card charges. Asbe emphasized that the impact on small businesses and customers would be minimal, as 96% of UPI transaction volumes and 75% of transaction value would remain outside the MDR framework.

Only a small portion of the MDR revenue would be allocated to a small-merchant fund aimed at supporting around 20 million card-accepting merchants, potentially doubling their numbers to 10 million. Additionally, the revenue would be used to fund capacity, cybersecurity, artificial intelligence, and quantum-proofing measures. NPCI is also preparing to launch its agentic-payments framework, which could help smaller merchants compete more effectively with large platforms that charge commissions of 20-30%.