Why in news
- The Parliamentary Standing Committee on Finance defended its report proposing a structured revenue model for digital payments.
- The government is examining options to reintroduce a Merchant Discount Rate (MDR) for certain large merchant transactions on the UPI network.
Key terms
Merchant Discount Rate (MDR)
Fee paid by merchants to processing banks and payment gateways for handling digital transaction payments.
Unified Payments Interface (UPI)
Instant real-time payment system developed by NPCI to facilitate inter-bank peer-to-peer and person-to-merchant transactions.
What is Merchant Discount Rate (MDR)?
- MDR is the fee charged to a merchant by payment service providers for processing digital transactions.
- The fee is distributed among the acquiring bank, issuing bank, card network, or payment gateway service providers.
- In 2020, the government mandated a zero-MDR policy for RuPay debit cards and UPI transactions to encourage digital adoption.
Proposed Framework and Controversy
- The Parliamentary Panel on Finance suggested exploring a sustainable revenue model for digital payments infrastructure.
- The proposed reform considers selectively levying MDR on higher-value merchant transactions while keeping peer-to-peer (P2P) transfers free.
- Payment aggregators and banks cite operational costs and fraud prevention expenses as justification for fee restoration.
Why it matters
- Balancing financial inclusion and zero transaction costs for users against financial viability for digital payment service infrastructure.
- Impacts regulatory design overseen by National Payments Corporation of India (NPCI) and Reserve Bank of India (RBI).
Prelims facts
- Zero-MDR policy applied to UPI and RuPay debit cards since 2020.
Mains discussion
- Financial sustainability of digital payment infrastructure versus digital financial inclusion goals.
Source: Economic Times
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