Payments Council of India Pushes for MDR on RuPay and UPI, Sparks Industry Debate

The Payments Council of India (PCI) has urged the government to introduce a Merchant Discount Rate (MDR) for RuPay debit card transactions and a reasonable MDR of 0.3 percent for Unified Payments Interface (UPI) transactions by large merchants. PCI, which represents 180 payment industry members, believes that this move will ensure sustainability for payment service providers while aligning with global digital payment practices.

PCI has emphasized that this proposal follows existing MDR structures for other payment methods. Credit card transactions typically incur an MDR of around 2 percent, while non-RuPay debit card transactions are subject to approximately 0.9 percent. The council argues that applying similar charges to RuPay debit cards and UPI transactions would create a level playing field in the digital payments ecosystem.

Currently, RuPay debit card transactions for most merchants do not attract an MDR, a policy that was introduced to promote digital transactions. However, PCI contends that this exemption has placed an unfair financial burden on banks and payment service providers, who continue to process transactions without a revenue model. The industry body believes that a nominal MDR on RuPay debit card payments will ensure long-term viability while maintaining the momentum of digital transactions.

For UPI payments, PCI has specifically recommended an MDR for large merchants, while keeping payments free for small businesses and individual users. The council argues that large merchants benefit from seamless and cost-effective digital payments, and introducing a reasonable MDR will support the infrastructure needed for UPI transactions.

The digital payments industry has experienced rapid growth in India, with UPI emerging as a dominant mode of transactions. Government policies promoting cashless payments have driven this expansion, but payment service providers argue that a zero-MDR framework limits innovation and investments in security and technology.

Banks and fintech firms have long called for an MDR on UPI and RuPay debit card transactions to support operational costs and further improve payment security. Industry leaders believe that without an MDR, payment service providers may struggle to sustain themselves, potentially slowing down innovation in the sector.

Despite these arguments, the government has remained firm on keeping UPI transactions free for end-users. The Reserve Bank of India (RBI) has previously indicated that any changes to MDR policies must carefully balance industry sustainability and digital adoption. While the introduction of an MDR for RuPay cards and UPI payments could provide financial relief to service providers, policymakers must consider its impact on consumers and merchants who have embraced digital transactions due to their cost-free nature.

Some industry analysts believe that if PCI’s recommendations are accepted, consumers may eventually face indirect costs as businesses adjust their pricing models. However, proponents of the MDR argue that a well-structured fee system will ensure continuous innovation, security improvements, and a robust digital payments infrastructure.

As discussions continue, stakeholders across the financial ecosystem will be closely monitoring the government’s response. The outcome will play a crucial role in shaping the future of digital payments in India, determining whether the industry moves toward a sustainable model while maintaining accessibility for millions of users.

The Payments Council of India (PCI) remains firm in its stance that introducing an MDR for RuPay debit cards and UPI payments will not discourage digital transactions but instead create a sustainable ecosystem for all stakeholders. Industry experts argue that while the initial push for digital payments required incentives like zero MDR, the long-term growth of the sector depends on a revenue model that allows banks and payment providers to invest in better security, fraud detection, and transaction efficiency.

Several fintech companies and banking institutions have echoed PCI’s concerns, stating that the absence of MDR on RuPay and UPI payments has forced them to rely on alternative revenue streams, such as data monetization and partnerships, which may not be sufficient to sustain the growing demand for digital transactions. They stress that a nominal MDR, especially for large merchants, would help cover operational costs and encourage further advancements in digital payment technology.

Opponents of the MDR proposal argue that implementing such charges could slow down digital adoption, particularly among small businesses and low-income consumers who rely heavily on free UPI transactions. Some merchant associations have expressed concerns that additional charges might lead to increased prices for consumers, as businesses would eventually pass on the costs. However, PCI has clarified that its proposal specifically focuses on large merchants, ensuring that small businesses and everyday users continue to benefit from cost-free digital payments.

Government officials have so far maintained a cautious approach, weighing the benefits of an MDR against the potential backlash from merchants and consumers. The Reserve Bank of India (RBI) has previously emphasized the importance of keeping digital transactions affordable to encourage cashless payments. However, industry leaders argue that a well-regulated MDR structure, applied selectively, can balance affordability with sustainability.

The government’s final decision on PCI’s proposal will significantly impact the future of India’s digital payments landscape. If an MDR is introduced, it could set a precedent for other financial instruments and payment systems, shaping the way digital transactions evolve in the country. The debate underscores the broader challenge of balancing accessibility, innovation, and financial viability in one of the world’s fastest-growing digital economies.