96% of UPI Transactions to Remain Unaffected by Proposed MDR: Mohandas Pai

BENGALURU, SEPT 16 : Infosys co-founder Mohandas Pai on Wednesday defended the proposed Merchant Discount Rate (MDR) on UPI transactions, saying nearly 96 per cent of payments would remain unaffected by the charge.

Speaking to reporters, Pai said around 70 per cent of UPI transactions comprised business-to-business and person-to-person payments, which would not attract MDR. He added that most small-value retail transactions, including purchases of vegetables, fruits and fuel, would also remain outside the proposed charge.

Pai said the MDR should be viewed as a payment-processing fee rather than a tax. Comparing it with credit card transactions, he said merchants typically pay around two per cent on credit card payments, while the proposed UPI charge would be about 40 basis points.

He argued that the long period of effectively free UPI transactions had placed the financial burden of maintaining and expanding the digital payments ecosystem on banks, payment companies and digital businesses.

According to Pai, UPI transaction volumes could rise from around 24 billion currently to nearly 50 billion within two years, requiring substantial investments in technology and infrastructure. He said the system would need to be upgraded to handle the growing volume of real-time payments and reduce instances of transaction failures.

Pai further argued that merchants who benefit from digital payments could share part of the cost instead of leaving the entire financial burden on banks and, indirectly, depositors.

"When 96 per cent of payments are not going to be charged, I don't know what is this criticism of this," he said, maintaining that the proposed MDR was a relatively small cost aimed at supporting continued investment in India's expanding digital payments infrastructure.