Merchant Discount Rate (MDR) is the fee paid by merchants for accepting digital payments. This has been there in India since Visa and MasterCard entered India. Different payment networks charge at different rates across payment instruments. Credit cards generally charge higher MDR than that of debit cards. MDR on Visa and Mastercard credit cards range from 1.5% to 2.5%, while American Express credit cards charge from 2% to 3.5%. Indian payment network RuPay-issued credit cards charge zero MDR on transactions valued up to ₹2000, and for transactions above ₹2000 the charges range from 0% to 2% depending on the transaction type and value. Debit cards have relatively lower rates, with Visa and Mastercard typically between 0.4% and 0.9%. RuPay debit transactions have 0% MDR.
For UPI, there is an MDR of 0.4% on P2M transactions above ₹2000 to be paid by merchants, which is capped at ₹300. P2M transactions up to ₹2000 have zero MDR. For P2P transactions, MDR is zero. Other special provisions apply to small merchants, essential services, and capital-market transactions. Overall, the structure shows how MDR varies by payment method, transaction type and regulatory framework, with the objective of balancing digital-payment adoption, merchant costs and financial inclusion.
Post the arrival of RuPay in the scene, things have dramatically changed. RuPay has expanded exponentially as it charges the lowest rates. Despite MDR on P2M transactions above ₹2000, the MDR on UPI is still significantly lower than that of the foreign payment networks. Most importantly, MDR on RuPay debit cards is zero while Visa MasterCard and AmEx charge between 0.4-3.5% depending on the instrument. So, without doubt, India’s RuPay network is still the cheapest among all available options in India. However, zero MDR on RuPay debit cards is interesting, and it seems that the government wants to anchor some specific behavioural changes in Indian citizens. Perhaps the government is worried about the rising credit card culture, which is leading to a huge rise in the personal loans category, which has made the RBI worried. However, lower MDR on debit cards don’t reflect in the prices of goods and services. So if the government is concerned about rising personal debts, the benefit of zero MDR must pass on to consumers, which at present is limited to businesses only.
For UPI, there is an MDR of 0.4% on P2M transactions above ₹2000 to be paid by merchants, which is capped at ₹300. P2M transactions up to ₹2000 have zero MDR. For P2P transactions, MDR is zero. Other special provisions apply to small merchants, essential services, and capital-market transactions. Overall, the structure shows how MDR varies by payment method, transaction type and regulatory framework, with the objective of balancing digital-payment adoption, merchant costs and financial inclusion.
Post the arrival of RuPay in the scene, things have dramatically changed. RuPay has expanded exponentially as it charges the lowest rates. Despite MDR on P2M transactions above ₹2000, the MDR on UPI is still significantly lower than that of the foreign payment networks. Most importantly, MDR on RuPay debit cards is zero while Visa MasterCard and AmEx charge between 0.4-3.5% depending on the instrument. So, without doubt, India’s RuPay network is still the cheapest among all available options in India. However, zero MDR on RuPay debit cards is interesting, and it seems that the government wants to anchor some specific behavioural changes in Indian citizens. Perhaps the government is worried about the rising credit card culture, which is leading to a huge rise in the personal loans category, which has made the RBI worried. However, lower MDR on debit cards don’t reflect in the prices of goods and services. So if the government is concerned about rising personal debts, the benefit of zero MDR must pass on to consumers, which at present is limited to businesses only.
Household debt is more than 45.5% of GDP. Non-household debt has risen to 58.4% of total household debt. Non-household debt includes personal loans, credit card outstandings, consumer durable & BNPL (Buy Now, Pay Later) loans, vehicle loans and gold loans. The share of housing and business loan in household loans has fallen to 26.3% and 15.3%. This change in the nature of debt may be a cause of concern in future. So, RuPay issued debit cards can be used to change this behavior. By passing the benefits of zero MDR on Rupay debit cards to consumers might be a very small effort in this direction.
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