Business

The NPCI had earlier stated that an MDR of up to Rs 300 would be applicable on transactions of Rs 75,000 or more. However, transactions involving sectors such as railways, telecommunications, insurance and fuel will follow a different structure. Instead of the MDR increasing with the value of the transaction, these categories will have a fixed charge. The flat MDR has been set at Rs 5.

According to information from the Ministry of Finance, UPI payments above Rs 2,000 made for railway services, telecommunications, insurance and certain other utility-related payments will attract a flat MDR of Rs 5. This means that a merchant will pay the same Rs 5 charge on a transaction of Rs 3,000 as on a transaction of Rs 30,000 under the specified categories.

The decision has been taken keeping in mind the nature of these sectors. Transactions are particularly high in areas such as railways, telecommunications, insurance and fuel, while the profit margins available to businesses in these sectors are often limited. Prices and charges are also frequently determined by specific regulatory or market structures. Applying a percentage-based MDR of 0.04 per cent to high-value transactions could therefore increase the operating costs of merchants.

To reduce this burden, a flat charge of Rs 5 has been prescribed for the specified categories. The government hopes that maintaining a fixed MDR for UPI payments in railway, insurance, fuel and telecom services will make digital transactions more convenient while also encouraging wider adoption of digital payments.

The difference becomes clearer when the calculation is considered. Suppose a UPI payment of Rs 2,000 is made. If an MDR of 0.4 per cent were applied, the merchant would have to bear a charge of Rs 8. Under the capped charge applicable to the specified categories, however, the merchant would pay only Rs 5. This would mean a saving of Rs 3 on that transaction.

The benefit becomes even more significant as the transaction value rises. For example, on a payment of Rs 10,000, an MDR of 0.4 per cent would normally result in a charge of Rs 40 for the merchant. Under the specified flat-rate structure, the merchant would instead pay only Rs 5.

It is important to note that the new MDR framework will apply only to transactions above Rs 2,000. The flat Rs 5 charge is not a blanket fee applicable to every UPI transaction and is specifically linked to the categories and transaction conditions notified under the new system.

MDR is a charge imposed on merchants for processing certain digital payment transactions. As per the stated rules, it is not intended to be directly collected from customers as a separate payment fee. The government has also advised banks to ensure that merchants do not pass the burden of the new UPI charges directly on to customers.

The introduction of category-specific MDR rates is therefore being presented as an attempt to balance the growing use of digital payments with the cost concerns faced by businesses. While percentage-based charges could become expensive for high-value transactions, the Rs 5 flat-rate structure in selected essential service sectors is expected to keep the additional cost under control and support continued growth in digital payments.