UPI MDR Fees: An MDR of 0.40% will apply to payments exceeding ₹2,000, with a limit of ₹300 per transaction..
UPI MDR Fees: A meeting of the UPI Steering Committee was held on September 15. In this meeting, an MDR (Merchant Discount Rate) of 40 basis points (bps) was fixed for UPI payments exceeding ₹2,000. The maximum cap for this charge will be ₹300 per transaction. This applies to every payment above ₹75,000; effectively, the MDR will remain fixed at ₹300 for any transaction exceeding ₹75,000.
This MDR charge will come into effect on October 15. MDR—or Merchant Discount Rate—is the commission a merchant pays to the bank for processing digital payments.
What does 40 bps MDR mean?
A basis point is one-hundredth of a percentage point; therefore, 40 bps equals 0.40%. Let’s understand this with a simple example: the MDR on a ₹100 payment would be 40 paise, while for a ₹10,000 UPI payment, the amount would be ₹40.
However, the customer will not have to bear this charge; the MDR is paid by the merchant.
No charges on UPI payments up to ₹2,000
A government notification has clarified that banks cannot levy any charges on UPI transactions of up to ₹2,000.
Similarly, no charges can be levied on debit card payments made via RuPay. The NPCI (National Payments Corporation of India) operates the domestic card network RuPay alongside UPI.
Annual revenue of up to ₹16,000 crore from UPI
With the implementation of an MDR of approximately 40 bps, the UPI ecosystem is estimated to generate annual revenue of up to ₹16,000 crore.
Multiple partners are involved in UPI payments; consequently, the revenue generated from MDR will be distributed among various stakeholders. These include the customer's bank, the beneficiary's bank, the PSP (Payment Service Provider) bank, and the merchant's payment aggregator. The NPCI also receives a switching fee for every transaction.
How will PhonePe and Google Pay benefit? UPI apps like PhonePe, Google Pay, and Paytm do not connect directly to the UPI network on their own; instead, they partner with banks.
These partner banks are known as PSP (Payment Service Provider) banks. They play a significant role in operating the UPI network. Consequently, PSP banks are likely to receive a larger share of the MDR compared to the card payment ecosystem.
Which banks are major PSPs?
Several banks operate as PSPs within the UPI ecosystem. Prominent among them are Yes Bank, Axis Bank, ICICI Bank, HDFC Bank, and SBI.
The new MDR system will create a new revenue stream for banks and other ecosystem partners associated with UPI. Meanwhile, customers will not incur any charges for UPI payments of up to ₹2,000.
Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
