World · India Bureau
NPCI defends MDR levy as essential to UPI system sustainability
India's payments regulator has justified imposing merchant discount rates on UPI transactions, arguing that zero-cost operations have become unsustainable given the system's explosive growth. The National Payments Corporation of India told the Supreme Court that rising security and infrastructure demands necessitate the new charges.
LSN India ·
The National Payments Corporation of India (NPCI) has defended its decision to introduce merchant discount rates (MDR) on UPI transactions, contending that the zero-cost model is no longer viable as the digital payment system scales rapidly. In submissions to the Supreme Court, NPCI argued that continued free operations would compromise the ecosystem's stability and growth trajectory.
According to NPCI's position, UPI's unprecedented expansion has exponentially increased demands on system security, resilience, and technical infrastructure. The regulator indicated that maintaining these enhanced standards without corresponding revenue streams would be impractical and potentially damaging to long-term sustainability.
The MDR imposition marks a significant shift in India's flagship digital payment platform, which has processed hundreds of billions of transactions since its 2016 launch. NPCI's argument centers on the proposition that costs associated with infrastructure upgrades, security protocols, and system maintenance must be recovered through transaction fees rather than absorbed by the system operator.
The regulatory move has sparked wider debate about balancing accessibility and affordability in India's digital payments ecosystem against the financial requirements for maintaining and expanding critical payment infrastructure. NPCI's submission represents an attempt to justify the policy shift by emphasizing systemic sustainability rather than profit motives.