MDR Can Help Sustain India’s Rapid Digital Payments Expansion: RBI

The Reserve Bank of India (RBI) on Tuesday said the introduction of a Merchant Discount Rate (MDR) on large-value UPI transactions is an important step towards ensuring the long-term sustainability of India's digital payments ecosystem.

The central bank said the measure would help UPI continue to expand, innovate and serve consumers and businesses across the country.

The RBI said a fair distribution of MDR among payment ecosystem participants would support continued investment in technology, infrastructure and acceptance networks. This could help expand UPI acceptance, increase its customer base and sustain growth in transaction volumes.

Importantly, all person-to-person (P2P) UPI transactions will remain free, regardless of the amount transferred.

For person-to-merchant (P2M) transactions, those below Rs 2,000 will continue to remain free for merchants, while MDR may be charged on transactions above that threshold.

The Finance Ministry clarified that MDR is neither a tax nor a government charge. Instead, it is distributed among participants in the payment ecosystem, including banks, payment service providers and UPI application providers, to support the operation and expansion of UPI.

Under the new framework, an MDR of 0.4 per cent will apply to P2M UPI transactions above Rs 2,000. For transactions of Rs 75,000 and above, MDR will be capped at Rs 300 per transaction.

Transactions above Rs 2,000 in essential and thin-margin sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 per transaction.

The RBI said it remains committed to keeping UPI safe, seamless, affordable and accessible while supporting the long-term growth and sustainability of India's digital payments ecosystem.