Government Eyes UPI MDR for Sustainability
India is exploring a framework that could introduce a nominal Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions, specifically targeting large merchants and e-commerce platforms. This move, currently under discussion, seeks to bolster the financial sustainability of the nation's burgeoning digital payments ecosystem.
Sources indicate a proposed MDR of approximately 0.04% is being considered. This charge would apply exclusively to businesses with an annual turnover exceeding ₹4 crore. Crucially, consumers are not expected to be directly impacted, as the MDR would be borne solely by the merchants.
Addressing Industry Concerns and Legislative Changes
The proposal stems from growing concerns within the banking and fintech sectors regarding the financial viability of the UPI ecosystem. Industry participants estimate annual losses of ₹5,000-6,000 crore due to the absence of MDR on UPI transactions, with existing government incentives covering only about half of these costs.
This development follows the Lok Sabha's passage of the Taxation and Other Laws (Amendment) Bill, 2026. This bill amends the Payment and Settlement Systems Act, 2007, granting the government authority to determine which digital payment modes may incur charges, thereby removing previous legal barriers against levying MDR on specified electronic payment methods like UPI.
Finance Minister Clarifies Stance
Union Finance Minister Nirmala Sitharaman clarified on August 6 that any potential MDR would apply only to merchants, not to end-users or customers. She emphasized that the proposed framework is designed to empower banks and fintech companies to invest further in payment infrastructure, innovation, and security, ultimately benefiting all UPI users.
The Finance Minister also noted that the UPI and Services Steering Committee, led by the National Payments Corporation of India (NPCI), will make the final decision on the MDR framework once the legislative process is complete.
What This Means for India's Digital Payments
The potential introduction of UPI MDR for large merchants represents a significant step towards ensuring the long-term health and growth of India's digital payment infrastructure. By recovering costs from high-volume businesses, the framework aims to maintain free digital payment services for millions of everyday consumers while enabling continued investment and innovation in the sector.