India’s evolving fintech landscape has hardly witnessed a raging chorus, with every stakeholder – from regulators to startups and lenders – pressing for a change in guidelines. That’s what is taking the country’s $793 Bn fintech market, on course to surpass $2.1 Tn by 2030, by storm at the moment.

The stakeholders have reached out to Prime Minister Narendra Modi, seeking a green light to charge large merchants on any UPI transactions above INR 2,000. The Merchant Discount Rate (MDR), which is the fee charged to merchants by banks or payment service providers for processing digital transactions through the Unique Payment Interface (UPI), was brought down to zero from January 1, 2020, to push for digital payments.

But the need to bring back the MDR was amplified with UPI becoming the primary mode of retail payments and RuPay gaining traction, and the industry felt the blanket waiver was no longer necessary to drive digital payments.

On March 24, the Payments Council of India (PCI) in a letter to PM Modi sought urgent reconsideration of Zero MDR on UPI and Rupay debit card transactions. PCI is an industry body of members like Airtel Payments Bank, Amazon Pay, Google Pay, Cashfree, and Jio Payments Bank. PCI’s call to impose MDR on big-ticket transactions was supported by another industry body, Startup Policy Forum, which counts Razorpay, Groww, and Zerodha as its constituent members.

They have called for an MDR of 0.3% on UPI payments above the ticket size of INR 2,000 for P2M transactions where merchants have an annual turnover of INR 20 Lakh. The two-tiered approach will balance growth with financial inclusion on one hand, while on the other, foster a sustainable ecosystem for digital payments space.

Banks had earlier requested the government to restore MDR on UPI payments for merchants with an annual GST turnover exceeding INR 40 Lakh. In fact, various industry players have repeatedly demanded that MDR be restored.

The call for MDR turned louder even as some of the largest players in the ecosystem, especially third-party applications (TPAPs) like Google Pay, PhonePe, and Paytm, maintained an unusual silence on the issue. Together, Google Pay and Phonepe constitute more than 80% of the UPI transactions on a volume basis, while Paytm remains a distant third.

“While it is true that we have not heard much from the TPAPs on the MDR issue, there is no reason why they should not be supporting this, considering that it will not impact 90% of their transaction volume as the average transaction value for them is below INR 2,000,” Rajesh Londhe, cofounder, Phi Commerce, told Inc42.

The fintechs and some of the leading banks that have taken up the issue with the RBI have not found any resistance from the regulator. “What the industry has been told is that the regulator is awaiting clarity from the government on MDR and once that happens, the RBI and the NPCI will have no choice but to allow the acquiring banks and payment companies to charge MDR from large merchants,” he said.

An acquiring bank enables businesses or merchants to accept various types of transactions, including credit or debit cards and other digital payments.

Sources privy to the discussions among the banks, fintechs and the RBI indicated that the industry hopes to see an announcement from the finance ministry on MDR soon. The participation of some of the largest private lenders has strengthened the case in their favour.

With the chorus growing louder to reinstate MDR on UPI, we unpack what’s really driving the demand.

What Went Wrong In Zero MDR Regime

The zero merchant discount rate regime was........

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