The introduction of merchant discount rate (MDR) on higher-value UPI transactions could change the economics of India’s payments business, nudging companies away from chasing transaction volumes towards monetisable use cases built around larger merchant payments.
Under the revised framework, eligible person-to-merchant (P2M) transactions above Rs 2,000 will attract an MDR of 0.4%, capped at Rs 300 for transactions of Rs 75,000 and above. By keeping smaller transactions outside the levy, the framework effectively creates two sets of economics for UPI—free for everyday payments, but with a revenue opportunity at the higher end.
ALSO READ
For payment companies, that could make categories with larger ticket sizes considerably more attractive.
“For MobiKwik, it creates an opportunity to build higher-value use cases around UPI and merchant payments rather than looking at payments only through the lens of transaction volumes,” said Bipin Preet Singh, co-founder, MD & CEO, MobiKwik.
STORIES YOU MAY LIKE
Singh said categories such as travel, e-commerce and high-value retail would face a “relatively modest cost” under the new framework, while the MDR would give the payments ecosystem greater room to fund continued investment.
The change could also lower the economic hurdle for newer players seeking to compete in UPI. Reeju Datta, co-founder, Cashfree, said the new structure would create a “predictable revenue stream for TPAPs”, giving more players an incentive to invest in a market that had so far favoured larger firms capable of sustaining operations in a zero-MDR environment.
Competition for merchants could also move beyond pricing. “The bigger opportunity here is for banks and fintechs to use this new headroom to compete on service quality rather than just cost,” said Vivek Mandhata, managing director and partner, BCG.
Faster settlements, stronger fraud protection and richer merchant analytics could emerge as key areas of differentiation, he said.
At the same time, the levy is expected to remain concentrated among larger merchants and higher-value transactions. Ranadurjay Talukdar, partner and payments sector leader, EY India, said the framework “protects consumers, small merchants and over 95% of low-value merchant transactions, while asking larger commercial payments to contribute modestly towards ecosystem costs.”
How far the new framework improves the economics of the payments ecosystem, however, will depend on how MDR revenues are distributed among participants and whether the pricing structure evolves over time. Talukdar said the Rs 300 cap “might merit a revisit in the future”, while stressing the need for transparent revenue sharing and safeguards against merchants passing the charge on to consumers.
Banks also see the MDR as a way to fund the infrastructure required to support UPI’s continued expansion.
ALSO READ
A payments head at a large private-sector bank said MDR revenues would help make the model financially sustainable. “This will help us in scaling up investments in technology upgrades, cybersecurity, and fraud-and-risk management, while supporting further consumer onboarding to UPI,” he said.
Vishwas Patel, managing director and CEO, AvenuesAI, and chairman, Payments Council of India, described the framework as an “important step towards a viable economic model”, while stressing that the push for sustainability should not come at the cost of financial inclusion.
This article was first uploaded on September sixteen, twenty twenty-six, at twelve minutes past eight in the night.
© The Indian Express (P) Ltd
aniltikotekar4sme.com 