India’s payments authorities are exploring implementing safeguards against passing merchant discount rate charges to consumers in UPI transactions, following a precedent set by debit card rules, though no final decision has been made amid ongoing debates and policy delays.
India’s payments infrastructure may soon borrow a rule from debit cards to prevent merchants from passing UPI merchant discount rate charges on to customers, even as officials insist no final decision has been taken on whether such fees will be introduced at all.
According to Business Standard, the National Payments Corporation of India is examining whether to add a similar safeguard to its UPI circular, with enforcement expected to sit with the Reserve Bank of India. The move comes amid concern that, if any UPI MDR is introduced, merchants could try to recover the cost from shoppers unless the rules are explicit and backed by a mechanism to police them.
The debate has sharpened after the government said UPI will stay free for consumers and that any MDR, if it ever comes in, would apply only to a limited set of large merchant transactions above a threshold and at a modest rate. RBI Governor Sanjay Malhotra has also said it is too early to decide on an MDR for UPI and that any such step would require a separate policy decision after legislation is in place.
A precedent already exists in card payments. In a December 2017 circular, the RBI told banks to make sure merchants they onboard do not pass debit card MDR on to customers. Legal experts quoted by Business Standard said that while a similar principle could be extended to UPI, confusion remains because some merchants charge convenience fees, which are different from MDR. Even so, a fintech founder told the paper that enforcing any new rule could prove difficult in practice.
For now, UPI remains free for person-to-person transfers and ordinary consumer payments, while the government continues to support the system through incentives for eligible low-value transactions at small merchants. Officials and industry groups have repeatedly denied reports of a broad consumer fee, but the question of how to structure and police any future merchant charge remains unresolved.
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