Merchant Discount Rate (MDR): UPI Payments, Digital Transactions & RBI

UPSC Reference:  Economy

What is MDR?

Merchant Discount Rate (MDR) is the fee associated with processing a digital payment transaction, generally paid by the merchant side within the payment ecosystem.

It may involve different participants such as:

  • Acquiring bank

  • Issuing bank

  • Payment network

  • Payment service providers

Current Context

The government has indicated that a proposed MDR for certain UPI transactions could be nominal and restricted to specified categories of merchants/transactions above a threshold.

At present, many UPI transactions have historically operated without MDR for merchants; for example, India Post Payments Bank lists UPI MDR as 0% in its published schedule.

Why Important?

MDR is connected with the debate over:

  • Sustainability of digital-payment infrastructure

  • Merchant adoption

  • Payment service providers' revenue

  • Financial inclusion

  • UPI ecosystem

UPSC Key Pointer

MDR → Cost/fee associated with payment processing → Merchant side → Digital payments