Selective UPI MDR Will Need Reliable Merchant Intelligence, Not Just a Pricing Rule

PRNewswire
Bangalore (Karnataka) [India], August 21: At CARD91, we believe the UPI MDR debate must go beyond pricing. Any selective framework will require accurate merchant verification, consistent classification and ongoing risk visibility to protect legitimate businesses and ensure fair implementation. As India reopens the UPI economics debate, the implementation challenge will be identifying, classifying and treating merchants fairly.
The passage of the Taxation and Other Laws (Amendment) Bill, 2026 has reopened the industry discussion around the Merchant Discount Rate, or MDR, on UPI transactions.
The amendment creates a legal pathway under which the existing zero-MDR structure may be modified for specified digital payment transactions. However, the Government has clarified that no immediate charge has been introduced. Consumers and person-to-person payments will remain free, small merchants will remain protected, and no final MDR framework has been announced.
Beyond the question of whether MDR should return, the industry must consider how any selective framework would work in practice. If future rules differentiate between transactions or merchant segments, banks and acquiring institutions will need accurate and current information about the businesses accepting those payments.
Incorrect merchant identity, outdated business information or inaccurate classification could result in inconsistent policy application and unnecessary disputes.
"The most difficult part of a selective MDR framework may not be setting a rate; it will be applying the policy consistently to the right merchant," said Ajay Pandey, CEO, CARD91. "Whatever parameters are eventually adopted, banks and acquirers will need verified and explainable information about the businesses accepting payments. The quality of merchant data will directly influence how fairly any differentiated framework operates."
Four Questions the Ecosystem Must Address
1. Is the merchant identity properly verified?
Merchant verification must go beyond collecting documents. Banks and acquirers need to establish that the business is genuine, operational and consistent with the credentials submitted during onboarding.
2. Is the merchant classified correctly?
A merchant's declared activity, actual business model and assigned Merchant Category Code should remain aligned. Institutions also need reviewable processes for identifying and correcting classification errors.
3. Has the merchant's profile changed?
Verification should not end after onboarding. Business activities, ownership details, digital footprints and transaction behaviour can change over time. Material changes may require additional review, but controls should remain proportionate and should not create unnecessary friction for genuine merchants.
4. What happens when the system gets it wrong?
Merchants need a clear process for correcting identity, classification or policy application errors. Explainable decisions and transparent redress will be essential if financial policies are applied differently across merchant segments.
Why Merchant Intelligence Matters Now
UPI processed 23.66 billion transactions worth approximately ₹29.88 lakh crore in July 2026. At this scale, inaccurate merchant records can create operational complexity for financial institutions and businesses.
The issue extends beyond MDR. Reliable merchant information also supports appropriate transaction limits, effective fraud controls, regulatory compliance and accurate payment categorisation.
In July 2025, before the current MDR discussion, CARD91 introduced an AI-led merchant verification and classification capability to help regulated institutions strengthen business verification and classification. The current debate highlights why accurate and current merchant information matters beyond onboarding.
A risk score or automated system should not independently decide whether a merchant is subject to MDR. Any future structure must follow the regulations and operating rules established by the Government, RBI and NPCI. Technology should support institutional judgement and consistent implementation, not replace them.
"The goal should not be to add more friction to merchant acceptance," said A.G. Ramakrishna, Chief Product Officer, CARD91. "It should be to ensure that legitimate businesses are treated consistently while financial institutions have the information required to manage risk and implement policy responsibly."
India built UPI's reach by making digital payment acceptance simple and accessible. If a selective MDR model is introduced, preserving that accessibility will depend not only on the pricing decision but also on the quality, transparency and fairness of its implementation.
About CARD91
CARD91 is a payments and onboarding risk infrastructure provider, enabling regulated entities to launch and scale customer programs with ease. The platform supports seamless onboarding journeys, fraud detection, credit decisioning, card issuance across credit, prepaid, and forex, and UPI stack capabilities across issuance and acquiring.
Through its NPCI-certified capabilities and technology stack, CARD91 helps institutions design bespoke customer payment programs and market them with speed, security, and a seamless digital experience. Built by a team of bankers and technologists and proudly made in India, CARD91 operates across key financial hubs, including Mumbai, Bangalore, Delhi, and Chennai.
For more information, visit https://card91.io/ or contact sales@card91.io.
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