New Delhi, Sept. 17 -- Banks were incurring costs on merchant verification, QR deployment and support without receiving any return from larger merchants under the zero-merchant discount rate (MDR) regime, M. Nagaraju, former secretary at the department of financial services (DFS), said in an exclusive email interview with Mint.

The former DFS secretary said the government's reassessment of the zero-MDR model was driven by the rapid increase in Unified Payments Interface (UPI) transaction volumes and the widening gap between the cost of running the ecosystem and the government's support.

UPI is set to move to a new pricing framework from 15 October, under which a 0.4% MDR will apply to specified person-to-merchant transactions above Rs.2...