NEW DELHI: State Bank of India (SBI) Chairman CS Setty recently backed the minimal merchant discount rate (MDR) on select Unified Payments Interface (UPI) transactions, stating the move could help banks fund rising transaction volumes and manage associated risks without significantly affecting consumers.
Speaking at the Business Standard BFSI Insight Summit 2026 in Mumbai, Setty said India’s UPI ecosystem requires sustained investment in computing infrastructure and real-time fraud monitoring as digital payments continue to grow.
Banks must strengthen service-level agreements with merchants and improve grievance redressal mechanisms to address cases where customers are charged extra. Transaction-level monitoring would also be necessary to identify such instances.
“SBI alone handles almost 400 million financial and non-financial transactions every day under UPI,” he said, adding that the bank conducted real-time monitoring for many transactions above the ₹5,000 threshold.
According to Setty, banks would continue investing to support customers, but the absence of adequate economic incentives could affect the wider ecosystem’s ability to fund the necessary infrastructure.
He said the proposed minimal MDR would help support these investments. MDR is a fee associated with processing merchant payments and is generally paid by merchants to payment service providers or acquiring banks.
Setty noted that 98 per cent of transactions would not attract MDR under the proposal being discussed. Person-to-person (P2P) transactions, which account for a significant share of UPI activity, would also remain exempt.
Protecting UPI users
When asked how banks could prevent merchants from passing the charge on to customers, Setty said safeguards would be needed to ensure consumers were not affected.
He said banks must strengthen service-level agreements with merchants and improve grievance redressal mechanisms to address cases where customers are charged extra. Transaction-level monitoring would also be necessary to identify such instances.
Setty added that SBI was working with the National Payments Corporation of India (NPCI), merchants, and merchant acquirers to develop a model that would prevent the cost from being passed on to consumers, to the extent technically feasible.
The discussion comes as NPCI has deferred the implementation of MDR on select person-to-merchant (P2M) UPI transactions until after Diwali, with the revised date yet to be announced. The levy, originally scheduled to take effect on October 15, will apply to eligible merchant transactions above ₹2,000, with a rate of 0.4 per cent capped at ₹300. Certain categories, including bill payments, fuel, and education, will attract a flat fee of ₹5 per transaction. NPCI said the deferment was intended to account for the festive season, while the proposed fee structure would remain unchanged.
