Why in the News?
The Ministry of Finance has proposed allowing banks and payment system providers to levy a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) and RuPay debit card transactions made to large merchants (annual turnover above ₹50 crore).
What is Merchant Discount Rate (MDR)?
- Merchant Discount Rate (MDR): A fee paid by a merchant to its bank for processing digital payments.
- The fee is shared among: Acquiring bank, Issuing bank, and Card/payment network.
- Currently, UPI and RuPay debit card transactions have zero MDR.
Key Proposal
- MDR permitted for merchants with annual turnover above ₹50 crore.
- Small and medium merchants remain exempt.
- Aims to ensure the long-term sustainability of the digital payments ecosystem.
Why is MDR Being Considered?
- Zero MDR has created a funding gap for payment infrastructure.
- Maintaining and expanding UPI networks involves significant operational costs.
- The Standing Committee on Finance recommended a sustainable revenue model.
Challenges
- Large merchants may pass the cost on to consumers.
- Could discourage UPI acceptance among some businesses.
- Turnover-based implementation may increase compliance complexity.
- May affect confidence in India’s zero-cost digital payment model.
Back2Basics
- UPI: Unified Payments Interface, a real-time payment system developed by the National Payments Corporation of India (NPCI).
- RuPay: India’s domestic card payment network operated by NPCI.
- NPCI: National Payments Corporation of India, the umbrella organisation for retail payment systems.
- Regulator: Reserve Bank of India (RBI) under the Payment and Settlement Systems Act, 2007.
National Payments Corporation of India (NPCI)
- National Payments Corporation of India (NPCI) is an umbrella organization for operating retail payment and settlement systems in India.
- Established in 2008 under the provisions of the Payment and Settlement Systems Act, 2007.
- Promoted by the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA).
- Registered as a Not-for-Profit Company under Section 8 of the Companies Act, 2013 (earlier Section 25 of the Companies Act, 1956).
[2018] Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news?
(a) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
(b) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
(c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
(d) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.