ET was the first to report on July 16 that the government is considering reintroducing MDR for UPI transactions undertaken by large merchants. Sources had told ET that the Centre could set the fee at 5-7 basis points if it is reintroduced.
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MDR is the fee charged to merchants by banks for accepting digital payments through UPI, debit cards or credit cards. UPI transactions have been exempt from MDR since January 2020 after the government made them free to encourage digital payments.
The Payment and Settlement Systems (Amendment) Bill, introduced in Parliament on Monday, removes the linkage between the Payment and Settlement Systems Act and the Income Tax Act, giving the Centre the power to notify which electronic payment modes will remain exempt from charges.
“In clause 2 of the bill, in the Payment and Settlement Systems Act, 2007, amendment of Section 10A in order to remove the reference of provision of Income Tax Act and also to provide that no bank or system provider shall impose, whether directly or indirectly, any charge upon a person making or receiving a payment by using one or more electronic modes of payment as may be notified by central government,” the bill said.
Brokerage Bernstein estimates that if MDR is reintroduced, it is likely to apply only to large merchants and transactions above ₹2,000, with a fee of 30-40 basis points, creating a meaningful revenue pool for payment companies while minimising disruption to overall payment volumes.
“Transactions above ₹2,000 account for just ~4% of volumes but nearly 70% of transaction value, making them the most practical starting point for monetisation while minimising disruption to overall payment volumes,” Bernstein analysts said in a report published in July.