National Payments Corporation of India informs Supreme Court that merchant discount rates are necessary to sustain digital payments

The National Payments Corporation of India (NPCI) informed the Supreme Court that Merchant Discount Rate (MDR) charges are required to sustain the Unified Payments Interface (UPI) ecosystem, while emphasizing that merchants cannot pass these charges on to customers. The submission highlights the financial viability challenges facing banks and payment aggregators that process billions of zero-fee peer-to-merchant transactions without adequate revenue models. The court is examining the structural economics governing digital retail payments.

Merchant Discount Rate represents the fee paid by a merchant to a bank for accepting payment services through digital cards or networks. In the context of UPI, maintaining robust server infrastructure, cyber security, and instant settlement networks requires continuous capital investment from participating banks and payment apps. Previously, zero MDR policies drove massive transaction adoption, but payment operators argue that uncompensated processing strains long-term infrastructure maintenance.

Merchants and business owners must avoid levying unauthorized surcharge fees on customers for UPI transactions in compliance with regulatory directives. Fintech professionals should track judicial proceedings to anticipate any future policy shifts regarding transaction fee caps. Bottom line: merchants cannot pass payment processing costs to consumers, making operational budgeting for digital receipts essential.