UPI MDR: Banks To Monitor Merchants As Centre Plans Mechanism To Protect Consumers

Banks will monitor merchants to ensure that the proposed Merchant Discount Rate (MDR) on selected Unified Payments Interface (UPI) transactions is not passed on to consumers, according to government sources cited by Asian News International (ANI).

The Indian Banks' Association (IBA) will formulate a mechanism for this purpose, while the Finance Ministry will hold a meeting with the banking body on the UPI issue. The ministry also plans discussions with merchants and the Confederation of All India Traders (CAIT).

IBA To Set Up Mechanism For Merchant Monitoring

The proposed mechanism will focus on ensuring that merchants absorb the MDR instead of adding it to the amount paid by customers. Banks will monitor transactions and merchants as part of the process being worked out by the IBA.

The move comes ahead of the October 15 implementation of MDR on specified UPI merchant payments. The government wants the banking system and merchant bodies to address concerns before the new framework takes effect.

Regional-Language Campaign Planned For Consumers

The IBA will also launch an explanatory campaign in regional languages to create awareness about the MDR framework. The campaign is expected to explain the rules to consumers and address concerns about additional charges on UPI payments.

The Finance Ministry will separately engage with merchant organisations on the issue. The proposed discussions with CAIT are aimed at taking merchant representatives through the new payment framework and the government's position on consumer charges.

GST Council May Examine MDR Tax Treatment

The Goods and Services Tax (GST) Council is also likely to take a view on the applicability of GST on MDR, according to government sources. The question of GST treatment is separate from the mechanism being prepared to prevent merchants from passing the MDR to customers.

According to a news report by PTI, the government sources have also clarified that not a “single penny” from the proposed MDR will go to government coffers. The amount will instead be distributed among entities participating in the UPI payment ecosystem.

MDR Framework Takes Effect From October 15

Under the new framework, a 0.4 per cent MDR will apply to specified Person-to-Merchant (P2M) UPI transactions above Rs 2,000. The charge will be capped at Rs 300 for transactions of Rs 75,000 and above.

Person-to-Person (P2P) UPI payments will not attract MDR, while merchant transactions up to Rs 2,000 will carry zero MDR. Essential sectors such as railways, telecommunications, insurance, fuel and agricultural inputs will attract a flat Rs 5 MDR on eligible transactions above Rs 2,000.

Around 96 per cent of UPI merchant transactions are expected to fall outside the new charge. The government has linked the framework to the need for a sustainable financial model for the country's digital payments infrastructure.