To reduce their dependence on banks, payment aggregators have pressured the government to share directly in merchant fees. They are demanding that their share of UPI fees be legally fixed.

Fintech companies demand from the government regarding UPI MDR.

Payment aggregators (PAs) want a fixed share of the merchant discount rate (MDR) charged on Unified Payments Interface (UPI) transactions, so they no longer rely on partner banks to pay them a portion of the fee. This means companies no longer want to rely solely on banks for revenue sharing.

What is the demand for fintech companies?

Under the current system, whenever a digital transaction fee is levied, the largest portion goes to the issuing bank (the customer's bank). Banks then transfer a portion at their discretion to aggregators (such as Razorpay, Cashfree, Paytm) that process payments on behalf of the merchant.

To put it this way, whenever a large merchant pays a merchant discount rate (MDR) or processing fee on a digital transaction, that money doesn't go directly to the payment companies. It first goes to the issuing bank—that is, the bank whose debit/credit card or account the customer is using.

The bank then decides how much of that fee it will share with the payment aggregator. Therefore, payment companies now want the government to establish pre-emptive rules to ensure they don't have to beg banks for their share.

No fixed rules

There is no fixed rule regarding the division of shares between banks and these payment companies. This is entirely based on commercial negotiations. Large banks often give very small shares to payment companies.

Fintech companies argue that the platform is theirs, but the banks have the final say. Payment companies bear all the technical and legal costs of onboarding merchants to their platforms, conducting their KYC (Know Your Customer), and operating the payment gateway servers flawlessly.

Despite all this hard work and infrastructure investment, they are still dependent on the banks for their income. This is why the government is now being pressured to enact regulations.