PhonePe boss Samir Nigam pushes back on UPI MDR critics

When the government floated a modest Merchant Discount Rate (MDR) on some UPI transactions, the idea sparked a fresh round of debate. On one side, former BharatPe co‑founder Ashneer Grover warned that putting a price tag on India’s free‑to‑use digital payments system could turn merchants and consumers away. On the other, PhonePe chief Samir Nigam shrugged off the criticism and laid out why the new framework still makes sense.

"I don’t take critics like Ashneer Grover seriously," Nigam tweeted, a line that quickly made the rounds on social media. The comment, posted in response to a thread by journalist Arijit Dutta, summed up the PhonePe CEO’s overall stance: the proposed charges are limited, transparent and, crucially, still a fraction of what card networks demand.

According to Nigam, roughly 95‑96% of merchant‑initiated UPI payments sit below the ₹2,000 threshold. Those tiny transactions – think buying a chai, paying a rickshaw fare or topping up a metro card – would escape the MDR altogether. Only the higher‑value slice, about 4% of the total volume but accounting for nearly two‑thirds of the value, would be subject to the fee.

He reminded listeners that UPI hasn’t always been zero‑cost. "When UPI launched, there was a 0.65% MDR. The government removed it in 2020," Nigam said, pointing out that the platform’s meteoric growth proved free transactions weren’t the sole driver of adoption.

For perspective, Nigam contrasted UPI’s 0.4% rate with the 1.5‑2.5% interchange that merchants pay for credit cards, RuPay and wallets. "We now have almost six million merchants with POS devices taking those higher‑cost options," he noted, "so UPI remains the cheapest payment network in the world, not just in India."

Grover, speaking to CNN‑News18, questioned the need for any charge at all. "Why are you interfering with something that already works? Free UPI is the only UPI," he said, warning that a fee could push users toward alternatives. He also flagged the ₹2,000 cut‑off, saying it skewed the share of transaction value.

Nigam countered that merchants are legally barred from passing the MDR on to consumers. “Any such charge is illegal under the Gazette notification and the NPCI circular,” he explained. Moreover, certain categories – insurance, petrol, bill payments – enjoy a capped fee of ₹5, while stock‑broking transactions are taxed at a mere 0.02%.

When pressed about the allegation that the MDR is a “tax‑funded” system, Nigma answered with a dose of pragmatism: “We don’t want government subsidies. We raise equity, we raise debt, we run a for‑profit business. The MDR simply replaces a subsidy with a sustainable commercial model.”

He also highlighted that a truly zero‑MDR environment is rare globally. “Zero MDR is an unusual arrangement worldwide. As transaction volumes explode, the industry needs a model that can sustain itself without endless hand‑outs,” Nigam said.

In short, the PhonePe chief is betting that a modest, well‑structured fee will keep the ecosystem healthy, while still protecting the small‑ticket transactions that form the backbone of everyday life in India.