UPI’s Monetisation Moment: Why MDR Is Back On The Table

The Centre is considering reintroducing a small Merchant Discount Rate (MDR) on high-value UPI transactions by large merchants, signalling a potential shift away from the six-year zero-MDR regime.

The move could finally create a sustainable monetisation model for banks and payment aggregators that have been processing the majority of UPI transactions without earning transaction fees

Industry executives say the biggest hurdle could be implementing a turnover-linked MDR, as there is currently no standardised mechanism to verify merchant turnover and enforce compliance without creating operational complexity.

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For nearly six years, Unified Payments Interface (UPI) transactions in India have carried a zero-cost promise: no Merchant Discount Rate (MDR), no platform fee, no technology fee. 

That promise fuelled UPI’s rise from a niche payment rail to a system processing over 2,272 Cr transactions worth ₹28.92 lakh Cr in June alone — a poster child of India’s digital payments landscape.

However, UPI is also increasingly becoming the payments ecosystem’s biggest unresolved economic problem.

Recent reports suggest the Centre is weighing a targeted reintroduction of MDR not across the board, but on a narrow slice of high-value transactions by large merchants.  Under the proposal, businesses with an annual turnover of ₹1 Cr to ₹1.5 Cr or more would attract an MDR of 0.05% to 0.07%, and only on UPI transactions above ₹2,000. 

Recent reports suggest the Centre is weighing a targeted reintroduction of MDR not across the board, but on a narrow slice of high-value transactions by large merchants. 

Under the proposal, businesses with an annual turnover of ₹1 Cr to ₹1.5 Cr or more would attract an MDR of 0.05% to 0.07%, and only on UPI transactions above ₹2,000. 

Roughly 90% of merchants accepting UPI — the small and micro businesses that make up the bulk of India’s digital payments story — would remain untouched, according to the media reports and industry sources.

However, it is not the first time this idea has surfaced. 

The Payments Council of India has previously pushed for a 0.3% MDR on large-merchant UPI transactions, and the Parliamentary Standing Committee on Finance has recommended a phased reintroduction. 

The Finance Ministry, however, denied such plans as recently as last year, calling similar reports........

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