Anything for Free Cannot Work for Long: PCI’s Vishwas Patel on Need for MDR on UPI for Large Merchants

India’s digital payments ecosystem has made impressive strides, with UPI driving inclusion and convenience at scale. But as the network matures, key questions are emerging around its long-term viability, global ambition, and rural reach.

In a conversation with FE BFSI, Vishwas Patel, Chairman of the Payments Council of India (PCI) -- a representative body of non-bank companies in the payments market -- calls for introducing a Merchant Discount Rate (MDR) for large merchants to ensure UPI’s sustainability and fund future innovation. He also argues that India must now focus on building a global card-issuing network—like Visa or Mastercard—to truly internationalise its payments stack.

Patel also flags the urgent need for a common fraud-risk registry and the need for linking CBDC to stablecoins for real utility and market traction. Edited excerpts:

PCI has asked for MDR for large merchants to make UPI more sustainable. Would this move affect UPI’s mass market adoption?

UPI has transformed India’s digital payments, but it comes at a cost. While it’s free for users today, maintaining uptime, expanding to the hinterlands, and investing in tech and risk management all require funding. Government incentives for UPI have shrunk to Rs 1,500 crore this year, which isn’t enough to sustain growth or onboard the next 50 crore users on UPI. That’s why we’ve proposed a balanced MDR (merchant discount rate) approach to the Finance Minister.

While P2M (person-to-merchant) UPI transactions for small merchants with turnover under Rs 20 lakh can continue to be free, for large merchants who already pay 1.8% MDR for credit card payments, a small MDR of 30 bps on UPI (Rs 0.30 per Rs 100) is feasible. So on a Rs 100 transaction, if a large merchant receives Rs 99.70, he'll be okay with it.

This 30 bps can flush the ecosystem with the required money for risk infrastructure, marketing, and getting the next 50 crore people on the UPI platform. Anything for free cannot work for long.

UPI payment growth has slowed, with monthly transaction value rising by around 25 per cent in 2025, down from 35 per cent last year. What reasons do you see?

You can’t expect the same triple-digit growth in UPI payments that you saw earlier at this scale. It’s bound to taper to double or even single digits when you look at scale. But while innovations are taking place around UPI, such as PPI (prepaid payment instruments) on UPI, UPI Lite, UPI Autopay, etc., the ecosystem isn’t funded well enough to monetise them. Banks see UPI business as a liability, they don’t actively promote it. Without commercial viability, the next phase of UPI growth is a question mark. Fraud will rise and technology infrastructure won’t be able to scale up accordingly.

Would that impact UPI’s growth internationally also?

What the National Payments Corporation of India (NPCI) is doing today is building an acceptance mechanism for Indians to pay in other countries. That’s helpful for Indians to pay locally through their accounts, but real growth will come when we can create our own network globally, and foreign banks start issuing our cards such as RuPay. 

Today, banks across the world issue Mastercard and Visa-enabled cards. Outside India, how many of them issue a RuPay card? That’s the gap. So, that is the kind of network we need to build where local banks in different countries issue RuPay cards. Currently, the focus is only on growing the acceptance mechanism.

What will it take to scale existing payment mechanisms in rural India, ensuring safety and usability for low-literacy and low-income users?

The next wave of UPI growth is coming from rural India. To unlock that, we need to expand regional language support and introduce voice-based services like Hello UPI across the hinterland. So, these conversational payments technologies are for looking at new market dimensions.

Earlier, IVR systems enabled phone-based payments without requiring smartphones or deep connectivity. That model worked well in rural areas combined with assisted commerce where users select their preferred payment network like Mastercard, Visa or Rupay, enter their card number, following which the bank sends the OTP, the system reads it, and completes the transaction. 

However, today the problem being faced is that OTPs don’t always arrive from banks for IVR payments. A five-minute OTP validity sent to the cardholder on his phone should be mandated. It is up to the RBI to fix this. This will help crack the rural market.

Will that also help India in becoming a cashless society?

Irrespective of the rise in digital transactions, cash in circulation continues to grow. As of May 2, 2025, currency in circulation stood at Rs 38 lakh crore -- 11.5 per cent of GDP up from Rs 35 lakh crore at the end of March 2024. That growth is a reality check for those solely focused on digital numbers. We should aim for a less-cash society, not a cashless one.

One major reason for persistent cash use is merchant reluctance in rural and Tier-3/4 cities. Many still don’t accept digital payments. If these merchants are made aware that they fall below the tax threshold and won’t be penalized, acceptance would rise and cash use would drop.

Around payment-related frauds, what are the areas where you see gaps that need to be addressed?

Frauds remain a major challenge. Today, if fraudsters are blocked on one app or platform, they continue using others. There needs to be a common negative database and a real-time alert system, so if someone is flagged for fraud, they’re blocked across platforms instantly. Such infrastructure requires both funding and cooperation among all ecosystem players. 

Hence, PCI is awaiting RBI’s approval to become a Self-Regulatory Organisation (SRO). Once approved, we plan to implement a common risk database that can flag locations where fraud has happened and compromised UPI IDs. If my UPI is misused, the alert shouldn’t stop at one bank, it should immediately notify others and freeze funds wherever possible.

Cred and Paytm are among the platforms onboarding e-rupee acceptance. Do you see the central bank digital currency (CBDC) taking off and scaling up?

CBDC, which aims to replace cash, hasn’t taken off in the retail segment mainly because no one is driving it the way UPI was. With UPI, fintechs and payment players led the charge, offering cashbacks, running promotions, and putting in their own money. Banks didn’t push UPI much. Moreover, it was very easy to acquire customers via UPI to cross-sell services and earn money. That's why UPI scaled.

In contrast, CBDC lacks that ecosystem-level push. While the regulator has enabled it, there are no cashbacks, no large-scale advertising campaigns like we saw with UPI. Banks aren’t actively promoting it, and payment players are left with limited budgets after making UPI grow. That said, CBDC has shown some promise in B2B use cases, which the RBI has already begun to explore.

Going forward, I think CBDC could gain traction if the RBI allows it to be mapped to stablecoins. If one CBDC can be mapped to one stablecoin and that coin moves within a controlled marketplace, creating a mechanism for value transfer and yield, then CBDC can have some value.

Unlike cryptos that lack underlying value, stablecoins are pegged to sovereign currencies or precious metals, offering stability. If the RBI permits this linkage, it could open a viable path for CBDC adoption. But for now, while the RBI remains open for discussion, I don’t see CBDC scaling quickly.