Bengaluru (Karnataka) [India], September 16 (ANI): Noting that roughly 70–80 crore UPI transactions take place every day, PhonePe founder CEO Sameer Nigam has said that the government’s decision to introduce a 0.4 per cent Merchant Discount Rate (MDR) on merchant-related UPI transactions above Rs 2,000 will help industry generate revenue that can be reinvested into further growth.
In an interview with ANI, he also said that around 96% of transactions will remain free because the majority of UPI transactions in India are below Rs 2,000. He said the government decision on MDR is important for the long-term growth and sustainability of the UPI ecosystem.
“Around 96% of transactions will remain free because the majority of UPI transactions in India are below Rs 2,000. The NPCI has authorised a 0.4% MDR on UPI transactions exceeding Rs 2,000. As a result, the charge will apply only to larger transactions, and the revenue generated will help the industry at least recover its operational costs. For the past six years, while UPI transactions were MDR-free, the entire payments industry has been absorbing substantial losses every year,” he said.
“We have consistently raised this issue with the government and the RBI...Digital payment systems operate in more than 200 countries worldwide, yet India was the only country where UPI transactions carried no MDR. Now that a limited MDR has been introduced, we hope it will contribute to the further growth of the UPI ecosystem. This additional revenue will enable the industry to invest more in expanding UPI," he added.
Nigam said that he believes the biggest beneficiary will be the customer. “UPI was free for consumers before, and it remains free for consumers today. This ensures that people across the country can continue to use UPI conveniently while the ecosystem remains sustainable and capable of further growth"
He said when UPI was launched ten years ago, MDR was applicable, and the market grew rapidly during those initial years.
“Then came COVID-19, and in 2020, the government waived MDR, which was beneficial because it helped bring smaller businesses into the digital payments ecosystem. However, if you look at the scale today, UPI transaction volumes have increased dramatically. There are now roughly 70–80 crore transactions taking place every day. Given this massive volume, I believe the industry will now be able to generate revenue that can be reinvested into further growth,” he said.
“We will be able to expand deeper into smaller towns and cities and digitise more merchants. On the customer side, TPAPs (Third-Party Application Providers) are finally seeing a revenue stream after six years, which means we can invest more in marketing, innovation, and the development of new use cases. Every business aims to grow, and growth requires revenue," he added.
Nigam said around 60 lakh merchants already pay MDR on RuPay credit cards, Visa cards, and Mastercard transactions.
“Therefore, many merchants are already familiar with the concept of paying MDR. In fact, MDR rates on credit card transactions typically range from 1.5% to 2.5%, whereas the MDR on these UPI transactions is only 0.4%...To the best of my knowledge, 0.4% is among the lowest MDR rates in the world,” he said.
“The government has kept the rate very low, making it more acceptable for merchants. In return, merchants receive several benefits. Customers can make digital payments conveniently without handling cash. Merchants create a transaction history and digital footprint, which can help them access formal credit and business loans," he added.
The government said on Tuesday that the new UPI framework introduced has no impact on any person to person transactions. UPI will continue to remain completely free for all person-to-person transactions, irrespective of the amount transferred.
It said that MDR is neither a tax nor a charge collected by the Government or NPCI. It is distributed among payment ecosystem participants, including banks and payment application providers, to support the operation and continued expansion of the UPI ecosystem.
Introduced under the Payment and Settlement Systems Act, 2007, following detailed deliberations by the UPI Steering Committee, the framework seeks to ensure the long-term sustainability of UPI while protecting individuals and small merchants from additional charges, the government said. (ANI)
Government move on MDR important for long-term growth, sustainability of UPI ecosystem: PhonePe Founder Sameer Nigam
