RBI Governor Sanjay Malhotra Downplays Impact of MDR Fee on UPI Transactions

India's Reserve Bank Governor Sanjay Malhotra has expressed reservations about the potential impact of the upcoming Merchant Discount Rate (MDR) fee on Unified Payments Interface (UPI) transactions. The fee, which will be levied on transactions exceeding Rs 2,000, is expected to affect millions of consumers who rely on UPI for daily payments.

According to Malhotra, the MDR fee is unlikely to have a significant impact on the volume of UPI transactions. As of now, there is no indication of a decline in volumes, and he believes that a small fee will not substantially affect the volumes.

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The Merchant Discount Rate (MDR) refers to the charge paid by a merchant when accepting payments for goods or services through credit or debit cards. The National Payments Corporation of India (NPCI) recently notified an MDR of 0.4% for Person-to-Merchant (P2M) UPI transactions above Rs 2,000 in September.

The MDR fee is expected to primarily affect small-value UPI transactions of up to Rs 2,000. Which account for more than 95% of the total volume of UPI P2M transactions. The objective behind introducing a reasonable MDR is to maintain UPI accessibility and convenience for everyday payments while ensuring the long-term sustainability of the UPI ecosystem.

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The proposed postponement of the MDR fee rollout is expected to prevent any disruption to retail payments during the festive period. Sources indicate that the proposed delay will provide payments companies with additional time to prepare their systems for the new fee.

Shares of Indian digital payments companies fell on Thursday following reports of the possible delay. Paytm's stock dropped 7.6%, while One Mobikwik Systems' shares declined 7.2%.