New Bill Opens The Door For Merchant Charges On UPI
The Central Government has taken the first legislative step towards reintroducing the Merchant Discount Rate (MDR) on UPI transactions by proposing amendments to the Payment and Settlement Systems Act. The proposed changes would repeal the earlier legal provision that enforced a zero-MDR regime for UPI payments, creating a legal framework for charging merchant fees in the future.
The move does not immediately impose MDR but gives the government the flexibility to introduce it through future policy decisions.
Large Merchants Likely To Be Affected First
According to the proposal under consideration, MDR is expected to apply only to large merchants, while customers and small businesses are likely to remain unaffected.
One proposal being discussed is to levy an MDR of 0.3% to 0.5% on UPI transactions above ₹2,000 for merchants with an annual turnover exceeding ₹1.5 crore. No final decision has been taken on the rate or implementation timeline.
Why The Government Is Considering MDR Again
Industry stakeholders have long argued that the zero-MDR policy has made it difficult for banks, payment companies, and fintech firms to recover the costs of maintaining and expanding UPI infrastructure.
With UPI processing 23.6 billion transactions worth ₹29.9 trillion in July alone, payment companies say sustainable revenue is necessary to support investments in technology, cybersecurity, merchant onboarding, and network expansion. :contentReference[oaicite:2]{index=2}
Payments Ecosystem Could Benefit
Analysts believe that reintroducing MDR for select merchant transactions could create an annual revenue opportunity of ₹5,000 crore to ₹10,000 crore for the digital payments ecosystem.
The additional revenue could help banks and fintech companies strengthen payment infrastructure while ensuring continued innovation as digital payment volumes continue to grow rapidly.
Consumers Likely To Continue Enjoying Free UPI
The proposed framework is aimed at charging merchants rather than consumers. Peer-to-peer UPI transfers and payments made by customers are expected to remain free, while any future MDR would primarily target larger commercial transactions.
The government has not yet announced when or whether the proposed merchant charges will be implemented, but the legislative amendment marks the first formal step towards ending the zero-MDR era.
Summary
The government has proposed amendments to the Payment and Settlement Systems Act, creating a legal framework to reintroduce Merchant Discount Rate (MDR) on UPI payments. The proposal is expected to target large merchants, with discussions around a 0.3%–0.5% fee on transactions above ₹2,000. Consumers are likely to continue making UPI payments free of charge, while the move aims to make India’s digital payments ecosystem more financially sustainable.
