Why in News?
UPI platforms have flagged rising cybersecurity costs, especially from AI-enabled fraud, renewing demands to allow Merchant Discount Rate (MDR) on UPI.
What is MDR?
- MDR: Fee paid by merchants to banks/payment providers for processing digital payments.
- UPI: MDR is currently zero, so merchants pay no transaction fee.
- Costs are borne by banks, payment apps and government reimbursements.
Why are Security Costs Rising?
- AI-enabled fraud can make sophisticated cyberattacks cheaper and easier.
- Security accounts for 20%+ of UPI platform costs.
- Security infrastructure costs around 10 to 20 paise per transaction.
- Dependence on imported AI/cloud tools adds dollar and currency risks.
- Rising transaction volumes keep security expenditure high.
Why Allow MDR?
- UPI infrastructure is not costless and someone must bear its cost.
- Reduces dependence on uncertain government subsidies.
- Provides dedicated funding for cybersecurity and system resilience.
Concerns
- Fees on small-value transactions could push users back to cash.
- Higher costs may disproportionately affect price-sensitive consumers.
- Poorly designed MDR could weaken UPI’s role as a public digital infrastructure.
- Foreign AI security tools create strategic and currency dependence.
UPI: Back2Basics
- UPI: Real-time interbank payment system developed by NPCI.
- Enables instant P2P and P2M payments.
- NPCI: Umbrella organisation for India’s retail payment systems, established in 2008.
- Key systems: UPI, RuPay, IMPS, BBPS and FASTag.
- Regulated by RBI under the Payment and Settlement Systems Act, 2007.
“[2026] Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is NOT correct?
(a) UPI is a real-time payment system but Digital Rupee is akin to sovereign paper currency
(b) In case of UPI, settlement for end users happens instantly; in case of Digital Rupee, wallet balance gets transferred to another wallet (no traditional settlement)
(c) UPI transactions are recorded by banks and reflected in bank statements; in case of Digital Rupee, no data is captured in bank statements
(d) In both the cases (UPI and Digital Rupee), the liability lies with the users and their respective banks