Paying for shopping has never been easier, and cheaper, in India. But the mode of payment itself has never been free.
The Reserve Bank of India, for instance, spends around Rs 5,000 crore every year to print currency notes. Cards are paid for by the issuer and its costs are recovered from the user — public sector banks charged as much as Rs 7,564 crore for annual maintenance of debit cards in 2025-26, up from Rs 3,905 crore in 2021-22.
UPI payments, too, are being paid for by banks and other financial system players. And after years of looking to be compensated for bearing this cost — which may be as high as Rs 20,000 crore every year — they could finally get their wish.
On Tuesday, Finance Minister Nirmala Sitharaman introduced The Taxation and Other Laws (Amendment) Bill, 2026 in Parliament. The proposed changes to the Payment and Settlement Systems Act, 2007 could allow banks and payment system providers to charge fees on UPI and RuPay debit card payments.
Possible UPI charges
To be sure, not all UPI and RuPay debit card payments are expected to face a Merchant Discount Rate (MDR), which is levied on merchants by banks that process payments to help meet transaction processing, settlement and infrastructure costs.
“A reasonable approach would be to consider a 0.3-0.6% MDR on UPI transactions for large merchants”, particularly those with an annual turnover of over Rs 50 crore, said Sridhar Guntuku, Vice President of Alliances and Partnerships at Decentro, a fintech infrastructure platform.
According to Guntuku, an MDR of 0.3-0.6% on UPI transactions “broadly corresponds with the estimated ecosystem cost”. As such, it would work to only recover costs rather than generate profits.
Others, such as Mehul Mistry, Senior Vice President-customer success, strategy and growth at banking tech infrastructure firm Zeta, have different figures in mind. According to Mistry, current discussions are suggestive of an MDR of 0.05-0.07% for UPI payments. However, this is for merchants with an annual turnover of at least Rs 1 crore-1.5 crore, not Rs 50 crore — a smaller fee but with a lower merchant turnover threshold.
To put these numbers into perspective, credit cards face an MDR of 1-3% while for debit cards it is up to 0.9% of the transaction value. This inconsistency also needs to be fixed.
“Large merchants like Amazon and Flipkart already pay MDR on Visa/Mastercard debit and credit cards. An indefinite UPI carve-out for the same merchants is a structural subsidy toward one rail, funded by banks and PSPs rather than the high-volume merchants transacting on it,” Guntuku of Decentro said.
Crucially, any MDR on UPI and RuPay debit card payments may only be for transactions of over Rs 2,000. This is important: only 4% of person-to-merchant (P2M) UPI payments in 2025-26 were greater than Rs 2,000. And these 4% of transactions made up around two-thirds of UPI payments by value.
In 2025-26, more than 24,000 crore UPI transactions worth Rs 314 lakh crore were made. As such, an overwhelming majority of UPI payments will continue to be free.
Currently, the government has been subsidising payments of up to Rs 2,000 made 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 Rs 20,000-crore hole
What all infrastructure costs are these fees supposed to cover?
There is the mobile app, its development, and accompanying customer support. Then there are banks’ costs, which include authorisation, reconciliation, and settlement of transactions. Other costs are more easily understood: cybersecurity, Know-Your-Customer processes, cloud storage, disaster recovery, fraud detection, dispute handling, continuous network monitoring, and regulatory reporting.
Just how much is the payments industry spending on all this? While there are no official figures, Mistry of Zeta said industry estimates suggest the annual cost of operating UPI and RuPay debit card infrastructure “could be at least Rs 10,000 crore”.
Mistry’s estimate may be conservative.
According to a March report by the Standing Committee on Finance, the subsidy that was provided through the aforementioned government incentive scheme during from 2021-22 to 2024-25 accounted for “only 11% of the cost incurred by the digital payment industry”.
The Centre paid out Rs 8,730 crore under the incentive scheme for the four years in question. If this sum was only 11% of the cost incurred by the digital payment industry, then the total annual cost is just shy of Rs 20,000 crore.
Who pays the fee?
Would a fee on large UPI payments change how people make payments? A sizable chunk would, it seems, if it led to merchants passing on any MDR on UPI transactions to them.
According to a LocalCircles poll of more than 20,000 people, if a fee is levied on UPI payments of more than Rs 3,000 at large merchants, only 12% said they would continue using UPI. This percentage fell further to 2% when asked what they would do if merchants were to recover any transaction fee from customers for UPI payments of more than Rs 3,000.
As RBI Governor Sanjay Malhotra said on Wednesday, costs have to be paid by someone. “Ultimately, it is the consumer, in some way or the other, who is paying (for) it already. It may not be the same consumer, it may be the general economy and you don’t get to see it directly… Somehow, it is already getting passed on; it may not be directly on the user-pays principle.”
Merchant Discount Rate (MDR) is levied on merchants by banks that process payments to help meet transaction processing, settlement and infrastructure costs. Unsplash 
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