Zero-MDR model under review as UPI costs outpace government support
M. Nagaraju, former DFS secretary, says the zero-MDR model is being reassessed as UPI volumes surge and ecosystem costs outstrip government support.
The zero-merchant discount rate (MDR) regime left banks without any return on the cost of bringing merchants onto the Unified Payments Interface, according to M. Nagaraju, former secretary of the Department of Financial Services.
Speaking on the reassessment of the zero-MDR model, Nagaraju said the review was prompted by two converging pressures: the rapid growth in UPI transaction volumes and the widening gap between what it costs to run the payments ecosystem and the support extended by the government.
Under zero-MDR, merchants are not charged for accepting UPI payments, which means banks and other participants in the payments chain do not earn a fee on those transactions even as they bear the expense of onboarding merchants and maintaining the infrastructure.
Nagaraju's remarks point to a structural tension in the UPI framework, where transaction volumes have expanded sharply while the funding available to cover the ecosystem's operating costs has not kept pace.
The reassessment is significant for the future of India's digital payments architecture, which has been built on high-volume, low-cost transactions. Any change to the MDR structure would affect banks, payment service providers and merchants alike.