The report recommends restricting merchant discount rates to businesses with annual turnover of Rs 50 crore or more and exempting loan repayments and debt collections
India should limit Unified Payments Interface (UPI) transaction charges to large merchants and keep loan repayments and debt collections outside the fee structure, according to an IIT Bombay report, which cautioned that poorly designed charges could undermine trust in digital payments.
The report, UPI at a Crossroads: Reintroducing the MDR, said the economic benefits of UPI extend beyond the revenue that merchant transaction fees could generate. It called for a charging mechanism that allows banks and other ecosystem participants to recover costs without compromising affordability or discouraging digital payment adoption.
It recommended applying the merchant discount rate (MDR) primarily to businesses with annual turnover of Rs 50 crore or more, which are legally required to offer UPI as a payment option. According to the report, restricting charges to this category could account for about 90 per cent of the revenue proposed under the National Payments Corporation of India’s (NPCI) framework.
The report also proposed a reasonable fee on online person-to-merchant transactions, particularly those involving e-commerce businesses, where digital payments are integral to purchases. A targeted approach, it said, could help compensate participants in the UPI ecosystem while limiting the burden on consumers and smaller merchants.
Loan equated monthly instalment (EMI) repayments and debt collection transactions should remain exempt from MDR, even when payments exceed Rs 2,000, the report recommended. Charging for these transactions could increase repayment costs for borrowers, while keeping them free would support financial inclusion.
The recommendations follow an NPCI circular dated September 15 that introduced a 0.4 per cent MDR on specified merchant UPI transactions exceeding Rs 2,000. The charges are payable by merchants and capped at Rs 300 for transactions of Rs 75,000 or more.
Under the framework, transactions involving railways, telecom, fuel and insurance attract a flat charge of Rs 5 above the specified threshold. Capital-market transactions carry a lower MDR of 0.02 per cent, subject to the same cap of Rs 300. Person-to-person transfers and most everyday merchant transactions remain free.
The report also recommended that the Reserve Bank of India determine UPI MDR within the framework of the Payment and Settlement Systems Act, 2007.
(With inputs from agency)
