New Delhi, Mar 1 (KNN) FinTech companies recently engaged in a pivotal discussion with Finance Minister Nirmala Sitharaman regarding the implementation of a Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions.

During the open house session, representatives from fintech firms voiced concerns over the absence of MDR for UPI transactions, emphasising the need for monetisation within the payments space.

They highlighted the challenges faced by payment companies in generating revenue from such transactions, prompting exploration into alternative revenue streams like distributing insurance, mutual funds, and loans to customers.

MDR, the rate charged to merchants for payment processing services, has been a longstanding demand from the fintech industry.

In August 2022, the Reserve Bank of India (RBI) released a discussion paper proposing a tiered structure charge on UPI payments.

However, the finance ministry clarified that there was no immediate proposal to levy charges on UPI transactions, leading the issue to remain on the back burner.

Industry players advocate for a 'market-driven, fair, and reasonable' approach to MDR, recognising the necessity for fintech companies to sustain themselves financially.

They propose a pricing model for UPI transactions akin to or slightly lower than the MDR on card-based transactions, aligning with transaction volumes.

The introduction of MDR on UPI transactions is seen as a potential catalyst for banks to invest more in payment infrastructure.

However, challenges persist, notably concerning the lack of a clear business model for digital payment services utilising UPI rails.

Despite UPI transactions reaching record highs in value, touching Rs 18.41 trillion in January, concerns linger regarding the sustainable operation of digital payment services.

Industry executives highlight the dominance of foreign players in driving growth on UPI and stress the importance of establishing a viable business model.

The meeting also addressed the recent RBI decision to bar Paytm Payments Bank from conducting transactions after March 15.

Notably, this issue did not garner attention during the session, signalling a focused discussion on broader industry concerns.

(KNN Bureau)