India is considering introducing merchant charges on UPI transactions above ₹2,000, targeting large businesses while keeping consumer payments free. The proposed Merchant Discount Rate (MDR) could range between 0.3%–0.5%, creating a sustainable revenue model for banks and fintechs without burdening everyday users.
What’s Changing in UPI Policy
Background
UPI (Unified Payments Interface) currently allows free transactions for both consumers and merchants.
In 2020, the government scrapped MDR (Merchant Discount Rate) to boost digital adoption.
With UPI now processing 23.6 billion transactions worth ₹29.9 trillion in July 2026, policymakers argue that sustaining the ecosystem requires a revenue model.
Proposed Amendment
The Payment and Settlement Systems Act amendment tabled in Parliament provides a legal basis for reintroducing MDR.
Charges under consideration:
0.3%–0.5% MDR on transactions above ₹2,000.
Applicable only to large merchants (annual turnover above ₹1.5 crore).
Consumers and small businesses remain unaffected.
Impact on Stakeholders
For Consumers
No direct charges on bank-to-bank UPI transfers.
Everyday payments like groceries, bills, and peer-to-peer transfers remain free.
Wallet-based UPI transactions (e.g., PhonePe Wallet, Paytm Wallet) may attract interchange fees above ₹2,000, but merchants bear the cost, not users.
For Merchants
Large merchants may pay MDR on high-value transactions.
Small shopkeepers and local businesses are expected to continue enjoying fee-free UPI acceptance.
MDR could align UPI with card payment models, where merchants already pay 0.9%–1.5% fees.
For Banks & Fintechs
MDR revenue would help recover infrastructure and technology costs.
Enables further investment in cybersecurity, innovation, and global expansion of UPI.
Risks & Considerations
Merchant pushback: Larger businesses may resist fees, potentially passing costs to consumers indirectly.
Digital adoption: If not carefully implemented, MDR could discourage high-value UPI usage.
Policy clarity: Final decision on fee rates and applicability is still pending, leaving uncertainty in the market.
