India Set to Reintroduce Merchant Discount Rate on Digital Payments

The Centre is likely to introduce a Bill in Parliament on Tuesday to amend the Payment and Settlement Systems Act, 2007, paving the way for the levy of merchant discount rate (MDR) on UPI and RuPay debit card transactions, sources said. The government had scrapped MDR on UPI and RuPay debit card transactions from January 2020 to encourage digital payments and expand merchant acceptance. Before that, merchants paid an MDR of less than 1% on UPI and RuPay debit card transactions. Sources said the proposed amendment is likely to restore the pre-2020 provisions of the Payment and Settlement Systems Act, 2007 (PSSA). The Finance (No. 2) Act, 2019 inserted Section 10A into the Act, barring banks and payment system providers from levying any charge on either the payer or the recipient for transactions made through UPI, UPI QR codes and RuPay debit cards. The proposed amendment is expected to remove these payment instruments from the ambit of the section, allowing MDR to be levied. FE had recently reported that the Centre may reintroduce MDR on UPI transactions of Rs 2,000 and above for large merchants to compensate banks and payment service providers for rising operational costs and technology investments. The proposed MDR on UPI payments accepted by large merchants is not expected to exceed 0.5% of the transaction value, sources had said. However, merchants and businesses with an annual turnover of up to Rs 1.5 crore are likely to be exempt from the levy, irrespective of the transaction amount, to protect small merchants. MDR is a fee paid by businesses to payment processors for accepting digital payments.