R S Sharma, former Director General of the Unique Identification Authority of India (UIDAI) and former Chairman of the Open Network for Digital Commerce (ONDC), has strongly argued that India's Unified Payments Interface (UPI) must remain free for both merchants and consumers. Sharma cautions that implementing a Merchant Discount Rate (MDR) could significantly weaken the country's impressive digital payments momentum.
Instead of charging users, Sharma proposes that the government should fund the UPI infrastructure by utilizing the substantial savings generated through digital transactions. He believes this approach would prevent a reversal of the behavioral shift towards cashless payments and avoid pushing users back to traditional cash transactions.
The MDR Mismatch with UPI Economics
The debate around UPI charges gained traction following the Parliament's passage of the Taxation Laws (Amendment) Bill, 2026. While this amendment doesn't currently impose charges on BHIM-UPI or RuPay, it removes previous restrictions, allowing the government to notify payment modes that could carry a charge in the future.
Sharma argues that MDR, a fee typically charged to merchants for processing card payments, is fundamentally unsuited for UPI's economic model. Card transactions involve multiple intermediaries like issuers, acquirers, and networks, along with costs for physical cards, terminals, and managing credit risk. UPI, in contrast, facilitates direct, nearly instant fund transfers between bank accounts through a streamlined protocol, making the traditional MDR model incongruous.
Significant Impact of Even Small Charges
The sheer scale of UPI transactions means that even a minor charge could have a substantial impact. Sharma noted that in FY2025-26, UPI processed over 24,000 crore transactions, totaling approximately ₹314 lakh crore. With an average transaction value of around ₹1,300 and 86% of merchant payments below ₹500, an MDR could disproportionately affect small-value transactions and small merchants.
He estimated that a mere 0.3% charge on merchant payments could cost the retail economy about ₹27,000 crore annually. This cost would likely be passed on to consumers, potentially making digital payments appear more expensive and reversing the positive behavioral changes that have driven UPI's rapid adoption.
Funding UPI from Digital Savings
Sharma emphasizes the significant savings that digital payments already generate for the government and banks. The Reserve Bank of India spends an estimated ₹5,000-6,400 crore annually on printing currency notes, in addition to costs associated with cash storage and movement. Banks also benefit from reduced cash handling and a decreased need for physical banking infrastructure due to digital transactions.
His core argument is that these savings should be factored into how UPI infrastructure is funded. He suggests a transparent, formula-based mechanism where a portion of these wider economic gains is used to support UPI, rather than imposing charges on merchants and consumers. This approach would preserve UPI's zero-cost model, which has been crucial in making digital payments accessible across India, especially for small merchants and low-value transactions, thereby sustaining the shift away from cash.