UPSC Prelims Current Affairs for 11 August 2026

Merchant Discount Rate Latest News

The Govt recently said the proposed merchant discount rate (MDR) for UPI transactions will be nominal and apply only to a limited set of merchants for transactions above a threshold.

About Merchant Discount Rate 

• It is the fee charged to a merchant for accepting a digital payment.  
• When a customer pays a business digitally, multiple parties may be involved in completing that transaction. 
• Depending on the payment mode, these may include the merchant, payment gateway or payment aggregator, acquiring bank, issuing bank, card network or payment network, and other payment infrastructure participants. 
• MDR is part of the commercial structure that supports this payment acceptance chain. 
• For a merchant, MDR is best understood as a cost of accepting a particular type of payment. 
• When a customer makes a payment, the merchant usually receives the transaction amount after deduction of MDR.
• The MDR fees cover a variety of costs, including:
  • Payment processor fee: These fees are charged by payment processors (companies that handle transactions between merchants and banks like Razorpay) for their services.
  • Interchange fee: These are fees charged by card issuers (banks) to merchants for processing transactions.
  • Assessment fee: These are fees charged by card networks (like Visa, RuPay and Mastercard) to merchants for using their payment processing services.
  • Markup fee: These are fees that are divided among the different entities involved in the transaction.
  • Additional fees: Some payment processors may charge additional fees for services like fraud prevention, chargeback handling, and customer support.
• MDR is not a single fixed rate that applies to every business or every payment. 
• It may apply differently across cards, net banking, wallets, UPI, EMI, BNPL, QR, and other payment modes, depending on the provider and the applicable arrangement. 
• The MDR typically comes in the form of a percentage of the transaction amount. It is typically between 1% and 3%.
• Merchants must consider these fees as part of managing their business costs and setting their prices.
• MDR charges are automatically deducted from the merchant’s account at the time of settling the transaction batch.

MDR on UPI

• When UPI was launched in 2016, MDR was applicable. 
• But in January 2020, the government removed MDR on UPI and RuPay debit cards to push mass adoption of digital payments. 
• But zero MDR also meant banks, the National Payments Corporation of India (NPCI) and fintech startups got nothing from the transaction. 
• The government has compensated the industry through subsidies. 

Recent Changes Introduced in the Taxation and Other Laws (Amendment) Bill, 2026

• It empowers the government to levy an MDR on select electronic payment modes, with a potential MDR of 0.25 percent to 0.4 percent on business-directed UPI transactions. 
• The finance ministry said consumers will face no transaction charges and that all person-to-person (P2P) transfers will continue to be free.
• The government says it will apply only to a limited set of merchant transactions above a certain value threshold, at a nominal rate, which will be far lower than existing debit or credit card MDRs.   
• Small merchants and person-to-merchant payments below that threshold are expected to remain free, to protect the digital-payments push among small businesses.

News: ET