2 hrs ago
UPI MDR Return Could Boost Payment Technology Providers
The government may allow fees again on some UPI payments.
UPI is used by apps such as PhonePe and Google Pay.
The fees would likely apply to large businesses and expensive transactions, not ordinary person-to-person transfers.
Banks and payment apps could share the money.
Companies that build payment technology are already receiving more requests for new UPI apps.
Some banks and lenders may want their own apps instead of relying only on existing apps.
Merchants might have to show which fee category they belong to.
Small merchants and some low-value transactions may continue to receive exemptions.
India is reportedly considering restoring UPI merchant fees for larger merchants and higher-value payments.
The proposed merchant discount rate would be shared among banks, UPI apps and other payment participants.
Technology service providers report increased demand for banks’ and NBFCs’ own consumer-facing UPI apps.
Merchants may need to prove eligibility for lower rates, especially when using multiple banks.
MDR already applies to some RuPay credit-card and credit-line payments made through UPI.
- Who
- The Indian government, banks, NBFCs, UPI apps, merchants and technology service providers are involved.
- What
- A merchant discount rate may return for certain UPI transactions, potentially creating new revenue for payment participants.
- Where
- The proposed changes concern India’s UPI payment system and its participating banks, apps and merchants.
- When
- MDR has been zero on UPI since January 2020; credit lines on UPI have carried MDR since October 2024.
- Why
- The proposed fee would give banks and payment apps a way to earn from merchant payments and could encourage more competition and investment.
Industry opportunity
Merchant and implementation concerns
Who benefits from MDR
Industry opportunity
Banks, UPI apps, technology providers and investors could gain new revenue or improved economics from merchant payments.
Merchant and implementation concerns
Banks and acquirers may decide whether to absorb the fee or pass it on to merchants.
Fee classification
Industry opportunity
A category-based system could target larger or higher-value transactions rather than impose a universal charge.
Merchant and implementation concerns
Merchants may need to prove that they qualify for a lower rate, creating additional administrative work.
Growth of proprietary apps
Industry opportunity
Banks and NBFCs could launch their own UPI apps and potentially offer more direct payment services to customers.
Merchant and implementation concerns
Banks would need to determine the correct rate for merchants, including businesses that use several lenders.
Key facts
- Current UPI MDR
- Zero for standard UPI merchant payments since January 2020.
- Proposed coverage
- Larger merchants and higher-value payments; person-to-person transfers would remain free.
- Potential revenue sharing
- The fee could be divided among banks, UPI apps and other payment participants.
- Technology providers mentioned
- Mindgate Solutions, NPST, Sarvatra Technologies, Juspay, M2P Fintech, Zeta, iServeU and Finarkein Analytics.
- App demand
- Technology service providers report increased enquiries for banks’ and NBFCs’ third-party application provider apps.
- Existing MDR examples
- RuPay credit-card payments through UPI and credit lines on UPI already carry MDR under stated conditions.
- Small-merchant exemption
- The 2022 NPCI framework exempts small offline merchants from RuPay credit-card MDR on payments up to Rs 2,000.
Quotes
Siddharth Mehta
Co-founder of Kiwi, a fintech offering credit on UPI.
“Since our customers tend to be the larger regulated entities and we are not in the business of direct merchant acquisition, we will bill the regulated entities.”
financialexpress.com
“Till now, the investor perception was that you bring customers, you create engagement, and then you cross-sell. Now at least the core economics will work.”
financialexpress.com
Devi Prasanna Pradhan
Head of marketing at iServeU, a Bhubaneswar-based payments and card infrastructure provider.
“Since there is no MDR, there is no way of making money. But now, there are many players who want their TPAP apps, and we are getting a serious number of enquiries.”
financialexpress.com
Sources
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