Any potential Merchant Discount Rate (MDR) on UPI may apply to only a small fraction of transactions, a senior payments industry official told The Indian Express, with more than 95% of transactions facing no such fee. The source added there is no link between India-US trade talks and any potential fee on UPI transactions.
In 2025-26, only 4% of person-to-merchant (P2M) UPI payments were greater than Rs 2,000. However, these 4% of transactions made up around two-thirds of UPI payments by value.
“If UPI is to grow further and even across borders, more funds are needed. And for this, public funds cannot be used. So, money has to be generated,” the person said, requesting anonymity.
“An MDR would not be charged on small-value payments, such as those at kirana stores, where the average transaction size is Rs 100-200. This would be for large transactions that take place on e-commerce websites and shopping malls.”
An MDR is levied on merchants by banks that process payments to help meet transaction processing, settlement and infrastructure costs. Individuals making payments using UPI have never paid a separate fee to use UPI.
Separately, the Payments Council of India (PCI) said on social media platform X said that small merchants are not required to pay any charges to accept UPI payments and that consumers would not have to pay a fee if large merchants pay for payment acceptance.
“Merchant service charges, where applicable, are commercial arrangements between merchants and payment service providers. They do not mean that consumers pay to use digital payments,” the PCI, which represents various non-banking payment industry players, said.
Debate over a potential fee on UPI payments has emerged this week after the government introduced The Taxation and Other Laws (Amendment) Bill, 2026 in Parliament on Monday. The bill, which was passed by the Lok Sabha on Thursday, proposed changes to the Payment and Settlement Systems Act, 2007 that open the door for banks and payment system providers to charge fees on UPI and RuPay debit card payments.
To be sure, no decision has been taken so far, with Finance Minister Nirmala Sitharaman posting on social media platform X late on Thursday that the UPI and Services Steering Committee headed by the National Payments Corporation of India “is yet to decide on the MDR”.
“Merchant Discount Rate (MDR) applies only on the merchants and not on the end users/customers. It will support the Banks & Fintech to invest more on infrastructure, innovation & security. All users of UPI will reap the benefits of this investment,” Sitharaman had further said in response to a post by Congress leader Jairam Ramesh.
Experts point to the huge growth in UPI transactions, which has seen costs pile up: in 2025-26, more than 24,000 crore UPI transactions worth Rs 314 lakh crore were made. According to the aforementioned source, the industry’s annual costs are to the tune of Rs 15,000 crore.
“UPI has become critical national digital infrastructure used by hundreds of millions of Indians every day. As transaction volumes continue to grow, sustained investment in security, resilience, innovation, fraud prevention and infrastructure will remain essential to ensure that UPI continues to serve consumers and businesses reliably for years to come,” the PCI said.
Since 2020, the government has been subsidising UPI and RuPay debit card payments of up to Rs 2,000 to only small merchants through its ‘Incentive scheme for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M)’. The incentive offered is capped at 0.15% of the transaction value and is shared between banks, payment service providers and third-party app providers.
The Centre paid out Rs 8,730 crore under the incentive scheme during 2021-22, 2022-23, 2023-24, and 2024-25 combined. However, this was significantly lower than the cost borne by the payments industry to meet the various costs involved, which range from mobile app development, transaction authorisation, reconciliation, and settlement costs, cybersecurity, Know-Your-Customer processes, cloud storage, disaster recovery, fraud detection, dispute handling, continuous network monitoring, and regulatory reporting, among others. So far, these costs for the last decade or so have been borne by banks, payment companies, fintechs, NPCI, and Reserve Bank of India.
Payments industry players say that an MDR of 0.3-0.6% on UPI payments to large merchants with an annual turnover of more than Rs 50 crore could help recover the cost of maintaining the infrastructure. Some also point to a lower fee of 0.05-0.07%, but with a lower merchant turnover threshold of Rs 1 crore-Rs 1.5 crore.
Currently, credit cards face an MDR of 1-3% while for debit cards it is up to 0.9% of the transaction value.
“UPI has evolved from a new payment platform into the world’s largest real-time payment system. As the ecosystem continues to expand, discussions are taking place on how to sustainably support the infrastructure that enables billions of secure transactions every month, while continuing to ensure that consumers and small merchants remain protected,” the PCI added.
Individuals making payments using UPI have never paid a separate fee to use UPI. (Image generated using AI) 
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