Merchant Discount Rate (MDR)

IAS Current Affairs

19 hours ago

Source: Live Mint
GS III: India Economy

Overview

Why in the News?

The Finance Ministry dismissed claims of imposing MDR charges on UPI transactions as false and misleading.

The Union Ministry of Finance has dismissed speculation about levying a Merchant Discount Rate (MDR) on transactions made through the Unified Payments Interface (UPI), calling such claims “false, baseless, and misleading.”
No such plan exists, and the government remains committed to promoting digital payments.
UPI processed 18.68 billion transactions worth ₹25.14 lakh crore in May, reinforcing India’s lead in global real-time payments.

MDR is a fee that a merchant or business pays to their bank for accepting payments from customers via digital means like credit or debit cards.
When a customer pays using a debit or credit card, the full amount is not credited to the merchant’s account. The bank deducts the MDR fee before settling the payment.
MDR is shared among the following parties:
- Acquiring Bank – The bank that provides the card-swiping terminal to the merchant.
- Issuing Bank – The customer’s bank.
- Card Networks – Visa, MasterCard, RuPay, etc.
- Payment Aggregators/Gateways – Razorpay, PayU, etc
The MDR is calculated as a percentage of the transaction value.
This rate is not arbitrary and usually ranges from 1% to 3%, depending on several factors like the merchant’s transaction volume, the type of card used (credit cards often have higher MDR than debit cards), and whether the transaction is domestic or international.

Challenges and Controversies

Zero MDR Policy Impact: Disincentivised banks and payment service providers, as they bear infrastructure costs but receive no revenue from UPI/RuPay.
Raises concerns about sustainability and innovation in digital payment infrastructure.
Merchant Resistance: High MDR on credit card transactions often discourages merchants from accepting cards.

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