Bengaluru (Karnataka) [India], November 13 (ANI): A zero Merchant Discount Rate (MDR) model would not be sustainable for the Unified Payments Interface (UPI) over the long term, as the digital payments infrastructure requires continued funding for operations and innovation, Sumit Agarwal, founder of business accounting platform Vyapar Tech Solutions, said.
Speaking to ANI, Agarwal said the structure balances the interests of consumers and small merchants while allowing banks and payment service providers to invest in improving the payment infrastructure.
"Without the MDR, UPI wouldn't have been sustainable for a long period of time. This will not only help it sustain but also help a lot of other private players as well as the government to come up with new innovations that can improve the whole infra and take it to the next level," he said.
MDR is a fee paid by merchants to banks and payment service providers for processing digital transactions. The government had made MDR zero on UPI and RuPay debit card transactions from January 1, 2020, to encourage digital payments.
Under the revised framework announced in September 2026, a 0.4 per cent MDR will apply to specified merchant transactions above Rs 2,000, subject to a cap of Rs 300. Person-to-person payments, transactions up to Rs 2,000 and eligible small merchants will continue to remain exempt.
The charge was initially scheduled to take effect from October 15 but was deferred by NPCI until after Diwali, with a fresh implementation date to be notified.
Agarwal said the revised charges were unlikely to lead to a significant shift towards cash, as merchants and consumers had become accustomed to UPI payments. He said the existing payment patterns were expected to continue, with users gradually adapting to the revised fee structure.
He added that Vyapar would improve its reporting systems to help merchants track MDR deductions and monthly costs. Agarwal also backed NPCI's recommendation that merchants should bear the charges rather than pass them on to consumers.
Agarwal urged NPCI to allow accounting and ERP platforms to securely access merchants' UPI transaction data. “That will help merchants get more visibility and transparency,” he said.
He also called for higher UPI transaction limits for businesses, saying this could shift payments currently made through NEFT and RTGS to UPI.
On cybersecurity, he suggested that banks block specific transactions flagged for suspected fraud instead of freezing entire merchant accounts, which can disrupt business operations. (ANI)
"Zero-MDR model would not sustain UPI in long run," says Vyapar Tech founder Sumit Agarwal
