Merchant Charge Has Been Imposed To Save UPI Ecosystem, NPCI Tells SC, Pg16

Key Highlights:

• The National Payments Corporation of India (NPCI) informed the Supreme Court that "zero Merchant Discount Rate (MDR)" for all Unified Payments Interface (UPI) transactions is unsustainable.
• This stance was taken in response to a legal challenge against the government's decision to introduce an MDR of 0.4% on Person-to-Merchant (P2M) UPI transactions exceeding ₹2,000.
• UPI processed 24.51 billion transactions worth approximately ₹29.82 lakh crore in August 2026, highlighting significant growth and increased operational demands.
• The NPCI clarified that Person-to-Person (P2P) transactions and P2M transactions up to ₹2,000 will remain free of any MDR.
• The imposed MDR is projected to affect only about 4% of merchant transactions, targeting higher-value commerce.

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Detailed Insights:

• The NPCI emphasized that the rapid expansion of UPI necessitates cost recovery to maintain the system's security, resilience, and infrastructure.
• The government's previous efforts to cover zero MDR costs through incentive schemes from 2021-2022 placed a substantial financial burden on the public exchequer.
• The NPCI argued that MDR is a 'charge' collected by system participants to recover operational costs, not a tax or statutory levy requiring new legislation.
• The ₹2,000 threshold for MDR application is designed to protect everyday, low-value transactions made by ordinary consumers and small merchants.
• The UPI Steering Committee, which includes third-party application providers, has endorsed the new MDR framework.

Key Concepts Involved:

• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI facilitating inter-bank peer-to-peer and person-to-merchant transactions.
• Merchant Discount Rate (MDR): A fee paid by a merchant to their bank for accepting payments from customers via digital modes like UPI.
• National Payments Corporation of India (NPCI): An umbrella organization for operating retail payments and settlement systems in India, promoted by the RBI and IBA.