Overview

India’s ongoing debate over the Merchant Discount Rate (MDR) for Unified Payments Interface (UPI) transactions has been reignited by the passage of the Taxation and Other Laws (Amendment) Bill, 2026. The amendment creates a legal pathway to modify the existing zero‑MDR regime for specified digital payment transactions, although the Government has clarified that no immediate charge will be levied. Consumer‑to‑consumer payments will remain free, small merchants will continue to be protected, and a final MDR framework has not yet been announced.

Need for Reliable Merchant Intelligence

CARD91 argues that any selective MDR framework will hinge not on the rate itself but on the ability of banks and acquiring institutions to accurately identify, classify, and continuously monitor merchants. Inaccurate merchant identity, outdated business information, or mis‑classification could lead to inconsistent policy application and disputes. The firm stresses that the quality of merchant data will directly influence the fairness of any differentiated MDR model.

Four Critical Questions for the Ecosystem

1. Is the merchant identity properly verified? Verification must go beyond document collection to confirm that the business is genuine, operational, and matches onboarding credentials.

2. Is the merchant classified correctly? Declared activity, actual business model, and the assigned Merchant Category Code (MCC) must remain aligned, with reviewable processes to correct classification errors.

3. Has the merchant’s profile changed? Ongoing monitoring of business activities, ownership details, digital footprints, and transaction behaviour is required; material changes may trigger additional review, but controls should remain proportionate.

4. What happens when the system gets it wrong? Merchants need a clear, transparent redress mechanism for identity, classification, or policy‑application errors, with explainable decisions.

Scale of UPI Transactions

In July 2026, UPI processed 23.66 billion transactions amounting to approximately ₹29.88 lakh crore. At this volume, even minor inaccuracies in merchant records could generate significant operational complexity for financial institutions and businesses.

CARD91’s Technological Contribution

In July 2025, CARD91 launched an AI‑led merchant verification and classification capability designed to help regulated institutions strengthen business verification and classification. The firm cautions that a risk score or automated system should not independently determine MDR applicability; any future structure must adhere to regulations and operating rules set by the Government, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI). Technology should support institutional judgement rather than replace it.

Quotes from Leadership

  • Ajay Pandey, CEO, CARD91: “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. The quality of merchant data will directly influence how fairly any differentiated framework operates.”
  • A.G. Ramakrishna, Chief Product Officer, CARD91: “The goal should not be to add more friction to merchant acceptance. 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.”

Conclusion

Preserving UPI’s accessibility while potentially introducing a selective MDR model will depend heavily on the robustness, transparency, and fairness of merchant intelligence systems. CARD91 positions its AI‑driven verification platform as a solution to meet these emerging regulatory and operational challenges.