{"id":2638,"date":"2026-10-13T08:33:44","date_gmt":"2026-10-13T08:33:44","guid":{"rendered":"https:\/\/newsraise.com\/in\/2026\/10\/13\/iit-bombay-study-urges-upi-mdr-cut\/"},"modified":"2026-10-13T08:33:44","modified_gmt":"2026-10-13T08:33:44","slug":"iit-bombay-study-urges-upi-mdr-cut","status":"publish","type":"post","link":"https:\/\/newsraise.com\/in\/2026\/10\/13\/iit-bombay-study-urges-upi-mdr-cut\/","title":{"rendered":"IIT\u2011Bombay study urges slashing UPI merchant fee to 0.08% and reshaping bank revenue share"},"content":{"rendered":"\n<!-- Quick Adsense WordPress Plugin: http:\/\/quickadsense.com\/ -->\n<div class=\"9fece8afa224fd09e54b043d0febfb58\" data-index=\"1\" style=\"float: none; margin:10px 0 10px 0; text-align:center;\">\n<script async src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\r\n<!-- NR ATF -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:block\"\r\n     data-ad-client=\"ca-pub-8898941184964366\"\r\n     data-ad-slot=\"4839033563\"\r\n     data-ad-format=\"auto\"\r\n     data-full-width-responsive=\"true\"><\/ins>\r\n<script>\r\n     (adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\n<\/div>\n<p>Professors from the Indian Institute of Technology Bombay have submitted a paper that calls for a dramatic reduction in the merchant discount rate (MDR) applied to person\u2011to\u2011merchant (P2M) Unified Payments Interface (UPI) transactions. The study, authored by mathematics professor Ashish Das and former RBI official Pragya\u202fDas, recommends lowering the overall MDR from the 0.40% announced by the National Payments Corporation of India (NPCI) to just 0.08%.<\/p>\n<h2>Redefining the revenue split<\/h2>\n<p>The report proposes a new allocation of the reduced MDR. Under the authors\u2019 plan, third\u2011party application providers (TPAPs) such as PhonePe and Google\u202fPay would receive a 0.06% share, while payment service providers (PSPs) \u2013 primarily banks \u2013 would retain their current 0.02% share. This contrasts with NPCI\u2019s draft framework, which sets the TPAP share at 0.08%.<\/p>\n<p>Presently, banks that issue and acquire transactions enjoy the bulk of the revenue, collectively capturing about 70% of the MDR pool. The IIT\u2011Bombay authors argue that this arrangement should be scrapped, noting that banks already benefit from substantial net interest margins (NIM) earned on current\u2011account and savings\u2011account (CASA) deposits. The study cites a NIM of more than Rs\u202f4.85\u202flakh\u202fcrore recorded in FY26, describing it as \u201clarge and disproportionate\u201d compensation for a limited set of free services.<\/p>\n<h2>Funding the UPI ecosystem<\/h2>\n<p>To replace the bank\u2011derived revenue, the authors suggest that banks set aside roughly 3% of the funds that CASA depositors forgo through lower interest earnings. They estimate this amount at about Rs\u202f15,000\u202fcrore, which could be earmarked for operating and upgrading the UPI platform. In addition, the paper urges the Reserve Bank of India (RBI) and the central government to treat UPI as an essential service, comparable to the core\u2011banking\u2011solution (CBS) systems that have become mandatory for banks.<\/p>\n<p>The study also recommends the continuation of the Payments Infrastructure Development Fund (PIDF). Extending the PIDF, according to the authors, would help payment aggregators bring more merchants onto digital platforms, thereby expanding the reach of UPI.<\/p>\n<h2>Addressing high\u2011value transaction charges and other policy levers<\/h2>\n<p>One of the paper\u2019s focal points is the charge ceiling of Rs\u202f300 on P2M UPI transactions valued at Rs\u202f75,000 or more. The authors question the reasonableness of this cap, noting that RBI regulations require service charges to be broadly in line with the average cost of providing the service.<\/p>\n<p>To mitigate the burden on merchants and consumers, the report proposes a \u201cdigital payment fee\u201d on online purchases from e\u2011commerce companies. It observes that many merchants already levy charges on transactions exceeding Rs\u202f2,000 and also accept credit\u2011card payments. Consequently, the authors recommend lowering the credit\u2011card MDR to alleviate pressure on UPI users.<\/p>\n<p>The paper also calls on the RBI to rethink the policy of generous fee\u2011free ATM withdrawals, arguing that such allowances are harder to justify when consumers have ready access to digital payment options.<\/p>\n<p>Regarding the structure of any future fee, the authors argue that the credit\u2011card MDR model has no clear rationale for application to UPI. They suggest that, if an ad\u2011valorem fee is introduced for UPI, the maximum charge should be limited to Rs\u202f40 per transaction.<\/p>\n<p>Beyond fee structures, the study recommends making it mandatory for merchants with an annual turnover of Rs\u202f50\u202fcrore or more (approximately Rs\u202f4\u202fcrore per month) to offer UPI as a payment option. By targeting only large merchants, the authors estimate that the resulting revenue would account for about 90% of the MDR proposed by NPCI.<\/p>\n<h2>Context of NPCI\u2019s recent circular<\/h2>\n<p>In September, NPCI issued a circular that set a 0.4% MDR on P2M UPI transactions above Rs\u202f2,000, with the fee to be borne by merchants. For transactions of Rs\u202f75,000 or higher, the charge is capped at Rs\u202f300. The circular also stipulates a flat Rs\u202f5 fee for essential\u2011service transactions above Rs\u202f2,000, such as railways, telecom, fuel and insurance. Transfers between individuals and routine merchant payments remain free. A lower MDR of 0.02% applies to capital\u2011market transactions, also capped at Rs\u202f300.<\/p>\n<p>NPCI framed the move as an effort to create a sustainable revenue model for the digital payments ecosystem. The IIT\u2011Bombay paper, however, warns that adopting the proposed MDR framework in its current form could erode public confidence in UPI, a platform the authors describe as a public digital infrastructure that has boosted economic productivity.<\/p>\n<p>By emphasizing that the long\u2011term economic gains generated by UPI outweigh the additional revenue that could be collected through merchant fees, the report underscores the need to keep the payment system affordable and user\u2011friendly.<\/p>\n<p>In summary, the IIT\u2011Bombay study calls for a steep cut in the UPI merchant discount rate, a reallocation of revenue away from banks toward the platform\u2019s upkeep, and a suite of policy adjustments aimed at preserving the system\u2019s inclusivity and confidence among users.<\/p>\n\n<div style=\"font-size: 0px; height: 0px; line-height: 0px; margin: 0; padding: 0; clear: both;\"><\/div>","protected":false},"excerpt":{"rendered":"<p>A report by IIT\u2011Bombay professors recommends cutting the UPI merchant discount rate to 0.08%, eliminating banks&#8217; 70% share of revenue and directing funds toward the platform\u2019s upkeep.<\/p>\n","protected":false},"author":2,"featured_media":2639,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[299],"tags":[2905,2108,2369,2106,2031,305],"class_list":["post-2638","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-banking-policy","tag-digital-payments","tag-iit-bombay","tag-merchant-discount-rate","tag-rbi","tag-upi","entry"],"_links":{"self":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/posts\/2638","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/comments?post=2638"}],"version-history":[{"count":0,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/posts\/2638\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/media\/2639"}],"wp:attachment":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/media?parent=2638"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/categories?post=2638"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/tags?post=2638"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}