The introduction of merchant discount rates (MDR) on UPI transactions could significantly expand the platform's use in cross-border payments, according to JP Morgan Global Payments. As reported by The Times of India, Max Neukirchen, co-head of JP Morgan Global Payments, stated that this fee structure would provide merchants with an alternative that remains cheaper than both cards and cash for international transactions. The 0.4% rate is specifically designed to make UPI competitive in cross-border transactions while maintaining its reputation as a cost-effective payment solution.
The new MDR framework establishes specific charge structures across different transaction categories. Person-to-person UPI transactions remain free, while merchant payments up to ₹2,000 are exempt from MDR. For specified merchant payments above ₹2,000, a 0.4% MDR applies, with transactions of ₹75,000 and above capped at ₹300 per transaction. Certain essential sectors above ₹2,000 face a ₹5 per transaction charge, while capital-market transactions are set at 0.02%, capped at ₹300. These rates should not be interpreted as universal charges for every UPI merchant transaction, as the applicable treatment depends on transaction category and merchant classification.
Despite acknowledging that charging fees on UPI is a 'thorny topic', Neukirchen emphasized that the proposed charges would maintain competitive pricing. According to the report, where the 40-basis-point charge applies, UPI transactions remain cheaper than most alternatives. The analysis shows that card payments cost more and even cash transactions involve higher costs due to businesses needing to hold cash and face associated risks. However, the immediate impact may be limited if most person-to-merchant (P2M) transactions remain outside the charge and person-to-person (P2P) transfers continue to be free.
The integration of domestic fast-payment networks with global payment infrastructure represents a key industry trend, as noted by JP Morgan. As reported by The Times of India, JP Morgan has successfully connected Indian payment systems, including IMPS and UPI, with its global infrastructure to facilitate seamless movement of payments and money into and out of India. This connectivity enables faster and more efficient cross-border payment processing.
According to Neukirchen's assessment reported by The Times of India, fast-payment systems such as UPI have evolved from domestic solutions to become established in dozens of countries, including all major economies. The next major development is expected to be cross-border faster payments, which the MDR structure could help facilitate by incentivizing intermediaries to participate in international transactions. However, the long-term impact remains uncertain as merchants may respond to MDR costs through price increases, reduced discounts, or changes in payment acceptance policies.
