The Indian fintech companies are pushing for the restoration of Merchant Discount Rate (MDR) on the Unified Payments Interface (UPI) transactions as they argue that the zero MDR policy will not be sustainable for their business models. The zero-MDR regime introduced in January against digital payments had removed the transaction fees on RuPay and UPI payments, and put the burden on the banks and payment service providers. This has made it difficult to utilise UPI service for monetisation especially for big retailers who demand free transactions. Therefore, payment gateways forced to seek ways to make money other than low margin services or credit card processing.
Industry organisations like the Startup Policy Forum, also known as SPF, and the Payments Council of India, better known as PCI have been urging the government to rethink on the zero-MDR policy. They propose a two tiered MDR (Merchant Data Rate) model that allows funds to be charged only from larger merchants to sustain digital payment services without impacting the ecosystem.
Despite all these pleas, the National Payments Corporation of India (NPCI) says that many third party app providers have expressed interest in building UPI proving that the absence of MDR has not discouraged new entrants in the UPI ecosystem. However, Fintech businesses argue, unless the digital payments sector has a viable revenue model, the companies that innovate and deliver great quality of service to customers could fall behind.
