New Delhi: Merchant discount rate (MDR) should be applied to UPI transactions, particularly for large merchants such as Eternal and Policybazaar, as the current zero-MDR regime is financially unsustainable for banks and payment companies, said Upasana Taku, co-founder of One MobiKwik Systems Ltd.

Merchant discount rate is the fee merchants pay to banks and payment service providers for processing digital payments. The government removed MDR in January 2020 to accelerate the adoption of digital payments across the country. Earlier, the central bank permitted an MDR of up to 0.90% of the transaction value for debit card payments, while the National Payments Corporation of India (NPCI) allowed an MDR of up to 0.30% for UPI person-to-merchant (P2M) transactions.

Taku, who spoke to Mint in June, said that while the payments industry supports the government's financial inclusion goals, the absence of MDR means payment companies and banks continue to bear the cost of processing transactions without any revenue, even as large listed companies benefit from the zero-fee regime.

“While we all understand and appreciate the government's financial inclusion objective, the payments industry works in a very simple way. Whether it is banks or payment companies, we all agree that financial inclusion is a key mandate. But when UPI MDR is zero, a large listed company like Eternal or Policybazaar is also paying zero MDR on all the UPI transactions happening on its platform.” Taku, who is also the executive director and chief financial officer (CFO) of One MobiKwik Systems, said.

She argued that merchants with monthly payment processing volumes of ₹50 lakh to ₹1 crore or more should pay a reasonable MDR, even if it is lower than the charges levied on other payment instruments.

"Large merchants with monthly payment processing of over ₹50 lakh or ₹1 crore should reasonably pay an MDR. They already bear MDR on debit cards, credit cards, wallets and EMI cards, so there is no reason for UPI to be treated differently. While the MDR for UPI can remain lower than that of other payment instruments, a nominal charge is essential to help banks and payment companies recover the costs of maintaining technology, infrastructure and engineering capabilities," she added.

MobiKwik's shares settled 1.2% lower at ₹202.70 apiece on the BSE on Friday.

Taku's comments come as discussions around MDR have intensified across the fintech industry. "We have also seen the government reduce incentives and subsidies year after year for payment companies and banks, which were meant to compensate for supporting a zero-cost UPI (Unified Payments Interface) infrastructure. Those subsidies are also coming down. Then how does one continue supporting UPI's growth?" she said.

The central government has reduced the financial outlay for the UPI and RuPay incentive scheme to ₹2,000 crore for FY27, a decline of nearly 10% from the revised estimate of ₹2,196 crore for FY26.

Policy push

The debate has also gained traction in policy circles. In March this year, the Parliamentary Standing Committee on Finance recommended reintroducing a graded Merchant Discount Rate (MDR) on UPI transactions. "The objective of introducing zero MDR was to make digital transactions affordable and widely accessible. However, the absence of MDR makes the UPI ecosystem financially unsustainable," the Department of Financial Services (DFS) said in its written submission to the committee.

Zomato and Policybazaar refused to comment on Mint's queries until press time.

As UPI continues to generate close to zero revenue, the company remains bullish on wallets, where it holds about a 20% market share.

"Wallet is a key driver of revenue for us. UPI has the largest number of users and transactions, but it generates the lowest, or close to zero, revenue," Taku had said earlier. The company uses UPI as a customer acquisition strategy, leveraging its strong growth in the segment to bring users onto the platform before cross-selling higher-monetisation products such as wallets and bill payments.

In April this year, the company received approval from the Reserve Bank of India (RBI) for a non-banking financial company (NBFC) licence. It also secured approval from the BSE in March to commence its stockbroking business.

Digital lending contributes around 25–30% of MobiKwik's revenue. "Today, if we want to make any product changes while working with partner NBFCs, we first have to convince them to implement those changes before we can even make the first disbursal. That slows everything down. With our own NBFC, we can build product customisations ourselves" Taku said in June.

The company had earlier said the NBFC license would enable it to build and test new lending products using its own balance sheet, generate performance data and demonstrate the results to larger lending partners, thereby accelerating product innovation.

MobiKwik’s revenue from operations stood at ₹288.7 crore in the March quarter (Q4 FY26), up 7.8% year-on-year, while it reported a net profit of ₹4.4 crore compared with a net loss of ₹56 crore in the same quarter last year.

New Delhi: Merchant discount rate (MDR) should be applied to UPI transactions, particularly for large merchants such as Eternal and Policybazaar, as the current zero-MDR regime is financially unsustainable for banks and payment companies, said Upasana Taku, co-founder of One MobiKwik Systems Ltd.

Merchant discount rate is the fee merchants pay to banks and payment service providers for processing digital payments. The government removed MDR in January 2020 to accelerate the adoption of digital payments across the country. Earlier, the central bank permitted an MDR of up to 0.90% of the transaction value for debit card payments, while the National Payments Corporation of India (NPCI) allowed an MDR of up to 0.30% for UPI person-to-merchant (P2M) transactions.

Taku, who spoke to Mint in June, said that while the payments industry supports the government's financial inclusion goals, the absence of MDR means payment companies and banks continue to bear the cost of processing transactions without any revenue, even as large listed companies benefit from the zero-fee regime.

“While we all understand and appreciate the government's financial inclusion objective, the payments industry works in a very simple way. Whether it is banks or payment companies, we all agree that financial inclusion is a key mandate. But when UPI MDR is zero, a large listed company like Eternal or Policybazaar is also paying zero MDR on all the UPI transactions happening on its platform.” Taku, who is also the executive director and chief financial officer (CFO) of One MobiKwik Systems, said.

She argued that merchants with monthly payment processing volumes of ₹50 lakh to ₹1 crore or more should pay a reasonable MDR, even if it is lower than the charges levied on other payment instruments.

"Large merchants with monthly payment processing of over ₹50 lakh or ₹1 crore should reasonably pay an MDR. They already bear MDR on debit cards, credit cards, wallets and EMI cards, so there is no reason for UPI to be treated differently. While the MDR for UPI can remain lower than that of other payment instruments, a nominal charge is essential to help banks and payment companies recover the costs of maintaining technology, infrastructure and engineering capabilities," she added.

MobiKwik's shares settled 1.2% lower at ₹202.70 apiece on the BSE on Friday.

Taku's comments come as discussions around MDR have intensified across the fintech industry. "We have also seen the government reduce incentives and subsidies year after year for payment companies and banks, which were meant to compensate for supporting a zero-cost UPI (Unified Payments Interface) infrastructure. Those subsidies are also coming down. Then how does one continue supporting UPI's growth?" she said.

The central government has reduced the financial outlay for the UPI and RuPay incentive scheme to ₹2,000 crore for FY27, a decline of nearly 10% from the revised estimate of ₹2,196 crore for FY26.

Policy push

The debate has also gained traction in policy circles. In March this year, the Parliamentary Standing Committee on Finance recommended reintroducing a graded Merchant Discount Rate (MDR) on UPI transactions. "The objective of introducing zero MDR was to make digital transactions affordable and widely accessible. However, the absence of MDR makes the UPI ecosystem financially unsustainable," the Department of Financial Services (DFS) said in its written submission to the committee.

Zomato and Policybazaar refused to comment on Mint's queries until press time.

As UPI continues to generate close to zero revenue, the company remains bullish on wallets, where it holds about a 20% market share.

"Wallet is a key driver of revenue for us. UPI has the largest number of users and transactions, but it generates the lowest, or close to zero, revenue," Taku had said earlier. The company uses UPI as a customer acquisition strategy, leveraging its strong growth in the segment to bring users onto the platform before cross-selling higher-monetisation products such as wallets and bill payments.

In April this year, the company received approval from the Reserve Bank of India (RBI) for a non-banking financial company (NBFC) licence. It also secured approval from the BSE in March to commence its stockbroking business.

Digital lending contributes around 25–30% of MobiKwik's revenue. "Today, if we want to make any product changes while working with partner NBFCs, we first have to convince them to implement those changes before we can even make the first disbursal. That slows everything down. With our own NBFC, we can build product customisations ourselves" Taku said in June.

The company had earlier said the NBFC license would enable it to build and test new lending products using its own balance sheet, generate performance data and demonstrate the results to larger lending partners, thereby accelerating product innovation.

MobiKwik’s revenue from operations stood at ₹288.7 crore in the March quarter (Q4 FY26), up 7.8% year-on-year, while it reported a net profit of ₹4.4 crore compared with a net loss of ₹56 crore in the same quarter last year.