The Indian government has strongly refuted allegations that its decision to implement Merchant Discount Rate (MDR) on select UPI transactions was influenced by pressure from the United States. Instead, officials stated the move is designed to cultivate a self-sustaining revenue model for domestic digital payment providers and strengthen India's electronic payments ecosystem.
New UPI Charges and Government Rationale
Effective October 15, UPI merchant transactions exceeding ₹2,000 will incur a 0.4% Merchant Discount Rate. MDR is a fee paid by merchants to the various entities involved in processing and facilitating digital payments, including banks and payment application providers. The Department of Financial Services (DFS) clarified that this policy aims to provide smaller UPI companies with a viable revenue stream, enabling them to expand their operations and compete more effectively with established players.
Furthermore, the DFS highlighted that the policy is intended to bolster RuPay, India’s domestic card network, as a strong alternative within the nation’s credit-card ecosystem. A National Payments Corporation of India (NPCI) circular from September 15, 2026, explicitly permits credit transactions on UPI exclusively through RuPay credit cards.
Addressing External Pressure Claims
The government's clarification comes amidst a political debate and references to a 2026 report from the US Trade Representative (USTR). This report had raised concerns regarding the participation of US electronic payment service providers in India’s UPI ecosystem and the NPCI's 30% market-share limit for third-party application providers. The DFS dismissed these claims of external influence as "patently false and misleading," asserting that the USTR report merely underscored the challenges faced by US providers in achieving a level playing field with RuPay for UPI credit transactions.
Regarding the 30% market-share cap, which NPCI mandated in November 2020, the government acknowledged implementation difficulties. It argued that without a self-sustaining revenue model, smaller companies struggled to compete, making the introduction of MDR a critical step towards fostering a more balanced and competitive environment.
Political Opposition and Government Stance
Congress leader Rahul Gandhi has publicly opposed the new UPI charges, calling for their withdrawal and alleging that Prime Minister Narendra Modi introduced them under US pressure. The Finance Ministry, however, has rejected these claims and ruled out a rollback. The government clarified that MDR is neither a tax nor a fee collected by the government or NPCI. Instead, the revenue generated is distributed among the participants of the payments ecosystem, ensuring its sustainability.
Officials also pointed to recommendations from the Parliamentary Standing Committee on Finance, which had previously advocated for a tiered MDR or a similar revenue framework for UPI, urging its prompt notification and operationalization. This, the government suggests, validates the current policy direction.