Charges on select Unified Payments Interface (UPI) transactions are unlikely to have any major impact on transaction volumes, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday after the October monetary policy review. When asked whether the implementation of MDR from October 15 could reduce the number of UPI transactions and whether the RBI could consider increasing its price in the larger interest, Malhotra said the decision on MDR has already been taken.

At the press conference held after the policy, he said that so far we have not seen any reduction in the number of transactions and I personally do not think that the small fee will have any major impact on the number of transactions. The comments come at a time when UPI is set to move away from its longstanding zero-MDR framework for certain high-value merchant transactions. The government has said that the change is aimed at maintaining the long-term stability of the digital payments ecosystem without imposing any charges on consumers.

What will change in UPI transactions from October 15?

Under the new framework, 0.4 percent MDR will be levied on certain person-to-merchant (P2M) UPI transactions above Rs 2,000. Rs. For transactions of 75,000 and above, the MDR is Rs. 300 per transaction will be limited. Person-to-person (P2P) UPI transactions will be free, regardless of the amount transferred. The government has also said that merchant payments up to Rs 2,000 and transactions falling under the zero-MDR framework for small traders will be free. It is expected that around 96% of P2M UPI transactions will not be affected by the new MDR framework.

Importantly, MDR is not a charge that customers have to pay while making UPI payments. This is the fee charged in the merchant payment ecosystem and is shared between participating banks, payment service providers and UPI application providers. A fixed MDR of Rs 5 will be levied on transactions above Rs 2,000 in some essential and low-margin sectors such as railways, telecom, insurance and fuel. A lower MDR of 0.02 per cent will be levied on payments relating to mutual funds, securities, stock brokers and dealers, subject to a maximum limit of Rs. 300 is

Why does RBI think the impact will be reduced?

Malhotra’s words indicate that the RBI does not expect that implementing MDR alone will bring about any major change in the way consumers and merchants use UPI. The new fee will only apply to certain merchant transactions, while person-to-person payments will remain free as before. Hence, this will only affect merchants processing high value UPI payments. There will be no direct charges for customers to make UPI payments under the new system. The government has also said that the trader should not burden the customer with MDR as a separate fee.