Merchants Cannot Recover UPI MDR Charges From Customers: NPCI Assures Supreme Court

The National Payments Corporation of India (NPCI) has assured the Supreme Court that merchants cannot transfer Merchant Discount Rate (MDR) charges to customers under the revised Unified Payments Interface (UPI) pricing framework. It has also warned that payment service providers and banks may face action if they violate this restriction.

In an affidavit filed on November 3, NPCI argued that the proposed charges would have a limited impact on consumers, as most UPI merchant payments fall below the Rs 2,000 threshold.

NPCI Defends Revised UPI Pricing Framework

The affidavit was submitted in response to a petition challenging the introduction of MDR on specified person-to-merchant (P2M) UPI transactions above Rs 2,000.

The Supreme Court had sought responses from the Centre, NPCI and other parties on September 28. However, it declined to grant an interim stay on the revised framework.

NPCI submitted that UPI application providers cannot collect platform fees or other payment-related charges from users. The restriction on transferring MDR costs to customers is backed by contractual conditions. Violations could invite compliance action against banks, Payment System Providers, and Third-Party Application Providers, including possible termination of their UPI membership and facilities.

Most UPI Merchant Payments To Be Exempt

Under the proposed framework, MDR of up to 0.4 per cent will apply to eligible merchant transactions above Rs 2,000. NPCI argued that approximately 96 per cent of P2M transactions would not attract the charge.

The corporation also highlighted that around 70 per cent of UPI transactions are person-to-person (P2P) transfers. These payments will not attract MDR, irrespective of their value.

Small merchants under the person-to-person merchant (P2PM) category will also be exempt. This category covers merchants receiving monthly inward UPI credits of up to Rs 1 lakh.

NPCI has also proposed a dedicated fund to support UPI adoption among merchants with annual turnover of up to Rs 20 lakh.

Different MDR Rates For Specific Sectors

The revised MDR framework was originally scheduled to be implemented on October 15. However, NPCI deferred its rollout until immediately after Diwali, with the revised date to be announced separately. The proposed fee structure has not been withdrawn.

Under the framework, the MDR will be capped at Rs 300 for payments of Rs 75,000 and above. Railways, telecom, insurance, fuel and agricultural inputs will attract a flat MDR of Rs 5 per transaction above Rs 2,000.

Transactions involving mutual funds, securities, stockbrokers and dealers will attract MDR of 0.02 per cent, subject to a maximum of Rs 300.

NPCI has argued that the earlier zero-MDR system created a gap between the cost of operating UPI and the revenue available to support it. It cited infrastructure, cybersecurity, fraud prevention and customer service expenses as reasons for introducing the revised pricing structure.