Patanjali Civil Services Academy

UPI Merchant Discount Rate (MDR) Framework [Prelims Bits]

Tags: Prelims Current events of national and international importance

Source: The Hindu

Context: From 15 October, UPI merchant transactions above ₹2,000 will attract Merchant Discount Rate (MDR), with specified exemptions.

Standard MDR: 0.4% on UPI merchant transactions above ₹2,000; shared among banks, payment processors and app providers.
P2P transactions: No MDR, irrespective of transaction value.
Small P2PM merchants: No MDR if they receive ≤₹1 lakh/month through UPI QR codes under the Person-to-Person Merchant (P2PM) classification.
P2M transactions ≤₹2,000: No MDR on UPI or RuPay debit-card payments.
Specified sectors: Railways, telecom, insurance, fuel and agricultural inputs → flat ₹5 MDR for transactions above ₹2,000.
High-value transactions: MDR capped at ₹300 for transactions of ₹75,000 or more.
Financial-market payments: Mutual funds, securities, stock brokers and dealers → 0.02% MDR, capped at ₹300.
Consumer protection: Banks have been advised to ensure merchants do not pass MDR on to customers.
Small-merchant fund: 5% of total MDR collections will fund promotion of UPI among small merchants.
Stated impact: Government estimates only 4% of merchant transactions will be affected.
UPI: Real-time payment system developed by National Payments Corporation of India (NPCI), enabling interoperable bank-account-to-bank-account payments.
MDR ≠ customer transaction fee: MDR is a merchant-side payment acceptance charge within the payment ecosystem.

Q1. Under the stated UPI MDR framework, consider the following:

How many of the above transactions would attract an MDR according to the specified framework?

(a) Only one
(b) Only two
(c) Only three
(d) All four

Answer: (b)

Explanation:

1 — No MDR: P2M transactions up to ₹2,000 are exempt.
2 — MDR applicable: Railways is a specified sector subject to the flat ₹5 MDR above ₹2,000.
3 — MDR applicable: Mutual-fund transactions fall under the financial-market category, attracting 0.02% MDR subject to the ₹300 cap.
4 — No MDR: P2P transactions are exempt irrespective of transaction value.