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UPI MDR: How the new 0.4% fee will flow across banks and fintechs

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UPI MDR: How the new 0.4% fee will flow across banks and fintechs

UPI MDR: How the new 0.4% fee will flow across banks and fintechs

Under the new structure, 40% of the MDR will go to the customer's issuing bank, 30% to the merchant-acquiring bank, 20% to the UPI application and 10% to the bank supporting the UPI application.

Payment aggregators have no prescribed MDR share and are negotiating with acquiring banks for 50-80% of the latter's 30% allocation. On a Rs 10,000 eligible transaction, the Rs 40 MDR would mean Rs16 for the issuing bank, Rs 12 for the acquiring bank, Rs 8 for the UPI app and Rs 4 for the supporting bank. The 0.4% MDR applies only to specified P2M transactions above Rs2,000, leaving P2P payments and most P2M transactions outside the charge. NPCI estimates the new MDR could generate Rs13,000-15,000 crore annually, with actual earnings depending on transaction mix and commercial arrangements across the payment chain.

The new UPI merchant discount rate (MDR) will create a revenue pool that is divided across banks and payment companies, but the eventual economics will depend on where each participant sits in the transaction chain. Under the new structure, 40% of the MDR will go to the customer's issuing bank, 30% to the merchant-acquiring bank, 20% to the UPI application and 10% to the bank supporting the UPI application. Payment aggregators will separately negotiate with acquiring banks for a share of the latter's allocation. 4% MDR will apply from October 15 to specified person-to-merchant UPI transactions above Rs 2,000, subject to a maximum charge of Rs 300.


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