The Indian government is deliberating whether to reinstate a merchant discount rate on high-value Unified Payments Interface transactions or introduce a tiered incentive system, as it seeks sustainable support for the country’s rapidly expanding digital payments ecosystem.
India’s government is weighing whether to bring back a merchant discount rate on some high-value Unified Payments Interface transactions, or to replace the current open-ended support with a tiered incentive system that would taper off over time, according to a parliamentary reply cited by the Finance Ministry. The discussion reflects growing concern over how to keep the country’s fast-expanding digital payments system viable without placing too much strain on the public purse.
The issue has sharpened as official support has fallen short of the sector’s costs. The parliamentary standing committee on finance said the government has set aside ₹2,000 crore to incentivise UPI transactions and offset the impact of zero-MDR payments, while the industry says its operating costs are closer to ₹20,700 crore. The committee warned that weak compensation could squeeze investment in cybersecurity, fraud prevention and payments infrastructure.
UPI has carried no merchant discount rate since January 2020, when the fee was scrapped to encourage a shift away from cash. Before that, the levy on UPI merchant payments was capped at 0.30%. The panel also said UPI could soon be handling as many as 150 billion transactions a month and may add 600 million more users, underlining the scale of the system the government is trying to support.
At the same time, the government has continued to back low-value digital payments through targeted incentives. The Union Cabinet approved a ₹1,500 crore scheme for financial year 2024-25 to support BHIM-UPI person-to-merchant payments of up to ₹2,000, mainly for small merchants. Industry groups have argued that a broader fee structure for large merchants may ultimately be needed to make the ecosystem sustainable, and some reports have suggested any charge would likely be kept below 0.5% and limited to higher-value transactions.
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