Startup Policy Forum backs MDR for large merchants

With the debate around Merchant Discount Rate (MDR) fees gaining fresh momentum, industry body Startup Policy Forum which includes fintech companies such as Razorpay, CRED, Bharatpe, Mobikwik, Groww, Zerodha among others, has endorsed the proposal for MDR on UPI for large merchants, calling it a move necessary for smaller players to have room for growth.

“India’s digital payments landscape also needs to leverage competition to ensure a more evenly distributed and balanced ecosystem, where smaller players have room for growth. ⁠Exempting small merchants from MDR on UPI will help balance growth and inclusion objectives,” the body said in a statement.

This comes just days after the Payments Council of India (PCI) wrote to Prime Minister Narendra Modi, advocating for the introduction of merchant discount rate (MDR) on UPI transactions and RuPay debit cards.

SPF has proposed a two-tiered MDR model to differentiate between large and small merchants. Under this framework, small merchants would remain exempt from MDR, preserving the existing zero-fee structure for them.

“The two-tiered model of MDR ensures this balance by exempting small merchants from the proposed MDR framework and preserving the extant zero MDR framework for them,” the body proposed.

This approach aims to balance growth with financial inclusion while ensuring digital payments continue to expand. The forum also stressed the importance of a sustainable revenue model to drive innovation, security, and sectoral growth.

“This distinction will also ensure the long-tail of small value merchants have adequate impetus to upramp and experience digital payments acceptance ensuring UPI witnesses the next wave of growth,” the body added.

There is a growing industry sentiment that the current zero MDR regime was relevant in initial years of adoption and now requires a revaluation to ensure viability of the sector.

MDR Charges and the Ongoing Debate

In India, the merchant discount rate (MDR) on credit/debit card payments and mobile wallets typically ranges from 1% to 3% of the transaction amount. However, for UPI and RuPay debit cards, MDR is currently set at zero.

For example, if a customer makes a ₹5,000 purchase using a credit card with a 2% MDR, the merchant must pay ₹100 (₹5,000 x 2%) as a processing fee. In contrast, payments made via UPI incur no such charge for merchants.

The Payments Council of India’s (PCI) recent push for MDR on UPI and RuPay transactions has stirred controversy in the fintech community.