Source : INDIA TODAY NEWS
Former State Bank of India Chairman Rajnish Kumar has defended the government’s decision to introduce a Merchant Discount Rate (MDR) on select UPI payments, saying the fee is needed to meet the cost of running and securing the digital payment system.
“Maintaining the system involves a huge cost. There are compliance requirements, cybersecurity threats and fraud. Somebody has to bear that cost, and merchants are paying for the convenience they receive in return,” Kumar, who is also Chairman of Mastercard India, told India Today TV.
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He said digital payments remained more convenient and less expensive for merchants than handling cash and could not be subsidised indefinitely. “You can subsidise everything in this country, but everyone wants a subsidy on everything. That is a different argument,” he said.
The government has announced a new framework under which merchants will pay MDR, a fee charged for processing digital payments, on UPI transactions above Rs 2,000. It will take effect on October 15, 2026. Consumers will continue to make UPI payments without paying any transaction or platform fee.
‘IT IS A FEE, NOT A TAX’
Kumar rejected claims that MDR amounted to a tax on digital payments. “It is not a tax. That is not the right word to use. This is a fee payable by the merchant for the convenience,” he said.
Under the standard structure, merchants will pay up to 0.4 per cent on UPI payments above Rs 2,000. The fee will be capped at Rs 300 for transactions of Rs 75,000 or more.
Kumar stressed that 0.4 per cent was the maximum rate and would not necessarily apply to every eligible transaction.
“The notification says the fee will ‘not exceed 0.40 per cent’. It is a cap fixed by the National Payments Corporation of India, but the actual rate will be determined by the market,” he said.
He added that competition among banks and payment service providers could keep the actual rate below the ceiling.
WILL CUSTOMERS END UP PAYING?
Merchants will pay the fee to the banks that process their payments. The rules bar them from passing the charge on to customers. UPI applications will also not be allowed to levy a platform fee or any other charge on users.
Kumar dismissed concerns that merchants would pass the fee on to consumers by raising prices. “It was never the case earlier, and it will not be the case now,” he said.
He pointed out that merchants already pay MDR on Visa and Mastercard transactions without separately raising prices for customers using those cards.
“There is enough competition in the market, and merchants would not want to lose customers. On the whole, they still save money because handling cash is more expensive and inconvenient,” Kumar said.
Under the new framework, a merchant would pay Rs 12 on a UPI payment of Rs 3,000 and Rs 200 on a payment of Rs 50,000. On a transaction of Rs 1 lakh, the merchant would pay Rs 300 because of the cap, instead of Rs 400 under the 0.4 per cent rate.
LOWER RATES AND EXEMPTIONS
Railways, telecom services, insurance, fuel and government utilities will pay a flat MDR of Rs 5 on transactions above Rs 2,000 instead of the standard percentage-based fee.
For example, a fuel payment, insurance premium or electricity bill above Rs 2,000 will carry a Rs 5 fee for the merchant or service provider. Payments below Rs 2,000 will remain free.
Payments involving mutual funds, securities, stockbrokers and investment platforms will attract an MDR of 0.02 per cent, capped at Rs 300.
Transfers between individuals, including payments to family and friends or between a person’s own bank accounts, will remain free.
Small merchants who receive up to Rs 1 lakh a month through UPI QR codes directly into their accounts will also remain exempt. Receiving a single payment above Rs 2,000 will not remove that exemption.
WHY MDR HAS BEEN INTRODUCED
Kumar said MDR existed before the government removed it to promote UPI adoption. “MDR existed earlier as well. The government removed it because it wanted to promote UPI, and it has successfully done so,” he said.
He argued that banks and payment companies could not continue absorbing the cost because it limited their ability to invest in technology and security.
“The industry cannot continue to lose Rs 10,000 crore to Rs 12,000 crore indefinitely. It stifles innovation and fresh investment,” he said.
UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026, according to the government’s frequently-asked questions document.
The government estimates UPI costs Rs 20,000 crore annually to operate and says MDR revenue will fund security, upgrades and rural expansion.
However, more than 95 per cent of merchant UPI transactions fall below the Rs 2,000 threshold and will remain free of charge.
– Ends
SOURCE :- TIMES OF INDIA
