- Parliament has passed for UPI payments for high-value transactions at large merchants.
- The potential return of the merchant discount rate (MDR) on UPI could reduce profits for both mid-size online merchants and payment aggregators alike.
- With UPI’s zero-cost era under review by the government, mid-market businesses and payment firms are preparing for a potential margin crunch.
- Any newly introduced MDR is expected to be absorbed at least in part by these businesses, creating a shared burden that could squeeze margins for both entities.
- At mid-end, digital merchants are already being charged around 2 percent by many online PAs, leading to significant revenue or margin compression.
- Industry estimates have put the potential MDR pool in the range of Rs 13,500 crore to Rs 16,000 crore annually.
- Banks continue to incur expenses related to payment processing, fraud prevention, cybersecurity, and customer support without receiving a direct transaction fee from UPI payments.
The potential reinstatement of the merchant discount rate (MDR) on UPI payments could lead to significant profit reductions for online merchants and payment aggregators as the government reviews the zero-cost era.123456
Industry executives warn that mid-market businesses are bracing for a margin crunch as they prepare for the financial implications of MDR.
“At mid-end, digital merchants are already being charged around 2 percent by many online PAs. They will see a significant revenue/margin compression or lose share,” an industry expert noted.910
The potential MDR pool is estimated to range between Rs 13,500 crore to Rs 16,000 crore annually, depending on the transaction base and the rate imposed.1112
As the government considers these changes, “Banks continue to incur expenses related to payment processing, fraud prevention, cybersecurity and customer support without receiving a direct transaction fee from UPI payments,” according to Singhal.1314
The implications of these changes could reshape the landscape for digital transactions in India, affecting both merchants and consumers alike.
“With UPI's zero-cost era under review, mid-market businesses and payment firms are bracing for a potential margin crunch. Industry estimates suggest the MDR pool could reach ₹13,500 crore to ₹16,000 crore annually, impacting the financial landscape for digital merchants.”
