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The Reserve Bank of India (RBI) has indicated that it is too early to draw conclusions on whether merchant discount rate (MDR) charges will be introduced for digital payments following the government's proposed legal amendments. RBI Governor Sanjay Malhotra said the focus remains on strengthening the country's digital payments infrastructure while discussions continue on how its costs should be funded. The central bank also highlighted the growing adoption of the e-rupee and the expansion of the Unified Lending Interface (ULI), supported by the increasing digitisation of land records across states.
The Reserve Bank of India (RBI) has said it is too early to comment on whether the government's proposed amendments to laws governing digital payments will lead to the introduction of a merchant discount rate (MDR) on digital transactions.
Speaking to reporters after the RBI's monetary policy announcement, RBI Governor Sanjay Malhotra said it would be premature to speculate on the issue at this stage and advised stakeholders to wait for further developments. He said the immediate priority is to continue strengthening India's digital payments infrastructure.
Malhotra noted that investment in public digital infrastructure, including payment systems, requires sustained funding and the cost has to be borne by someone. He explained that there are broadly two ways to meet these costs either through public funds collected as taxes or through a user-pays model such as MDR, where merchants pay a fee for processing digital transactions.
He said the government is currently bringing amendments related to the digital payments framework and discussions on the funding mechanism should be viewed in that context. According to him, the focus at present is on improving the efficiency and strength of the country's payment infrastructure while awaiting further clarity on the proposed changes.
The issue of MDR has remained a key point of discussion within the payments ecosystem. Banks and several payment service providers have long argued that a sustainable revenue model is necessary to support the growing digital payments network. However, the government has so far continued with its policy of keeping Unified Payments Interface (UPI) transactions free for users and merchants, contributing to rapid growth in digital payment adoption across the country.
Industry observers have suggested that if MDR is introduced in the future, it could be applicable only to high-value merchant transactions carried out through UPI, while person-to-person transfers are expected to remain free. However, no official decision has been announced on such a proposal.
Malhotra reiterated that regardless of the model adopted, the cost of maintaining and expanding digital payment infrastructure cannot be avoided. He said that under the user-pays approach, merchants or users bear the cost through MDR, whereas in the absence of such charges, the expenditure is effectively supported through taxpayers' money. He added that the priority is to ensure continuous investment in digital payment infrastructure, while the final approach will become clearer as the situation evolves.
During the interaction, RBI Deputy Governor Rohit Jain said the use of the central bank's digital currency, the e-rupee, is steadily increasing. He said the RBI is encouraging banks to identify new use cases that can help expand the adoption of the digital currency.
Jain also highlighted the progress of the Unified Lending Interface (ULI), a digital platform designed to help lenders process and disburse loans more quickly by enabling seamless access to verified data. He said the RBI is encouraging financial institutions to increase the use of the platform to improve lending efficiency.
He added that 12 states have already digitised their land records, which is one of the key requirements for the successful implementation of the ULI platform. Several other states are also in the process of digitising their records, which is expected to further strengthen the platform's reach and effectiveness.
India's digital payments ecosystem has expanded rapidly over the past few years, led by the widespread adoption of UPI. The government has consistently supported zero-charge UPI transactions to encourage digital payments, while the RBI has continued investing in payment infrastructure and introducing initiatives such as the e-rupee and ULI to improve financial services and expand digital access.
Source PTI
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