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UPI MDR May Shift Costs to Consumers Despite Surcharge Ban: IIT Bombay Report
- •A new IIT Bombay report warns that the revised UPI fee framework could indirectly burden consumers through higher retail prices as merchants try to protect their profit margins.
- •The Merchant Discount Rate framework is estimated to generate around Rs 18,000 crore annually for payment service providers.
- •The report calls for tweaking and rationalising the framework before implementation to prevent the loss of public trust in UPI.
- •Under the revised rules, merchant payments above Rs 2,000 can attract an MDR of up to 0.40 per cent, capped at Rs 300 per transaction, while smaller payments remain free.
- •Researchers suggest that banks should contribute around 3 per cent of their net interest margin from deposits to sustain UPI infrastructure instead of imposing extra charges on digital payments.
Key Questions Answered
An IIT Bombay report warns that businesses may incorporate the newly proposed Merchant Discount Rate expenses into their general selling prices to protect profit margins. This could indirectly burden consumers with higher retail prices, even for transactions below Rs 2,000 where merchants are barred from directly passing on charges.
Under the proposed framework, merchant payments exceeding Rs 2,000 can incur an MDR of up to 0.40 percent, capped at Rs 300 per transaction, alongside a flat Rs 5 fee for certain essential-sector transactions. Meanwhile, person-to-person transfers and merchant transactions up to Rs 2,000 remain completely free.
The report recommends that banks contribute approximately 3 per cent of their net interest margin earned from CASA deposits in FY26 toward UPI infrastructure. It also suggests restricting MDR charges to e-commerce and large merchants with an annual turnover above Rs 50 crore.
