UPI payments above Rs 2,000 to attract MDR charge from October 15

From October 15, a merchant discount rate, or MDR, will start applying on every UPI transaction across the country. Under this, payments above Rs 2,000 will now attract a 0.40% MDR charge. This raises the question of who the money will go to and in what proportion. Here is a detailed breakdown of who stands to gain the most.

The largest share will go to the issuer bank, the bank where the customer holds their account. This bank will get 40% of the charge. Next comes the merchant acquirer, the bank that processes payments for the shopkeeper or merchant. It will get a 30% share.

The third share goes to the UPI apps through which customers scan and make payments, such as PhonePe, Google Pay or Paytm. These third-party apps will get 20% of the amount. The remaining 10% will go to the app sponsoring bank, the partner bank that provides backend banking and technical support to these UPI apps.

To understand this with an example, suppose a customer makes a purchase of Rs 10,000 at a shop, on which a 0.4% MDR is deducted. This means a charge of Rs 40 will apply for every Rs 1,000. Of this Rs 40, the issuing bank will get 40%, or Rs 16. The merchant acquirer, that is, the shopkeeper's bank, will get 30%, or Rs 12. The UPI apps will then get 20%, amounting to Rs 8, and the banks supporting these apps will get 10%, amounting to Rs 4.

This breakdown makes it clear that the issuer bank, where the customer holds their account, stands to benefit the most. On the other hand, the banks providing support and sponsorship to the apps will get the smallest share.