NPCI Proposes Dedicated Fund from MDR Collections to Expand Digital Payments in Smaller Indian Cities

The National Payments Corporation of India has proposed a dedicated fund sourced from Merchant Discount Rate collections to support small merchants and develop digital payment infrastructure in Tier 3 to Tier 6 cities, as well as remote regions including Northeast India, Jammu and Kashmir, and Ladakh. Five percent of MDR collections will go into the fund. Small merchants receiving up to ₹1 lakh monthly via UPI QR codes and transactions up to ₹2,000 will remain free of MDR charges. The Finance Ministry noted that nearly 96% of P2M transactions will not be affected by the new framework, which takes effect October 15.

A dedicated fund drawing on Merchant Discount Rate revenues has been put forward by the National Payments Corporation of India (NPCI) to bolster smaller traders and broaden digital payment networks across tier-two and tier-three cities. This development follows plans by India to apply MDR to certain UPI transactions beginning 15 October. The allocation is designed to facilitate retailer registration, raise payment transaction activity among established small vendors, and extend digital financial infrastructure into smaller urban and rural localities. The fund is also set to encompass designated federal government programmes across other regions. Financial support will be extended to participants across the ecosystem to facilitate merchant onboarding and promote the adoption of UPI among smaller traders already operating within the network. Funding will extend to digital payments infrastructure across smaller urban and rural areas, encompassing the northeastern states, Jammu and Kashmir, and Ladakh. Five percent of the total MDR collections will be channelled into this fund. The updated MDR structure aims to establish a financially viable earning model as the payment network broadens its reach. The platform has functioned under a zero-MDR policy since January 2020, a framework the government put in place to boost the uptake of digital payments. Funds raised through the MDR will be allocated across stakeholders within the UPI ecosystem, channelled toward areas including payment infrastructure, cybersecurity, fraud prevention, and customer support. The Merchant Discount Rate applies to qualifying transactions processed through the payments network, with the cost borne by merchants rather than consumers. Under the revised guidelines, small traders classified within the P2pm segment remain exempt from MDR charges. Under NPCI's guidelines, vendors processing payments of up to ₹1 lakh per month via UPI QR codes are exempt from merchant discount rate charges. Payments below ₹2,000 are set to continue at no charge. According to the Finance Ministry, roughly 96% of person-to-merchant transactions are expected to be unaffected under the updated MDR guidelines. The updated MDR is expected to cover higher-value merchant transactions rather than routine small-denomination UPI payments. The proposed fund would channel revenue from merchant discount rate collections on qualifying higher-value transactions toward onboarding smaller traders onto digital payment platforms and expanding infrastructure across underserved regions of India.

NPCI Proposes Dedicated Fund from MDR Collections to Expand Digital Payments in Smaller Indian Cities

Related Posts

NPCI Proposes Dedicated Fund from MDR Collections to Expand Digital Payments in Smaller Indian Cities

Related Posts