Will UPI Payments No Longer Be Free? India Moves Toward Reintroducing Merchant Fees
A proposed legal amendment could allow merchant charges on certain UPI transactions, while smaller businesses and consumers may continue to enjoy free payments.
India has taken the first step toward bringing back Merchant Discount Rate, or MDR, on UPI payments. A new bill introduced in Parliament proposes amendments to the Payment and Settlement Systems Act, creating the legal framework for charging merchant fees on selected UPI transactions.
Finance Minister Nirmala Sitharaman presented the amendment, which is expected to pave the way for significant changes to the country’s digital payments ecosystem. However, the government has not yet announced when or how the proposed charges will be implemented.
UPI has become one of the world’s largest and fastest growing digital payment networks. According to official data, the platform processed more than 23.6 billion transactions in July, with a total value of nearly Rs 29.9 trillion, equivalent to about 313.5 billion US dollars. The market is dominated by PhonePe, owned by Walmart, and Google’s Google Pay.
For several years, fintech companies and banks have argued that offering UPI services without merchant fees has made it difficult to maintain and expand the digital payments infrastructure. Merchant Discount Rate is the fee paid by businesses to banks and payment service providers for processing digital transactions. At present, MDR is charged on credit and debit card payments, while UPI transactions remain free for merchants.
Although the proposed legislation provides the legal basis for introducing MDR, the government has not finalized the fee structure or the scope of its implementation. Policymakers are currently considering two options. One proposal would apply charges only to transactions above a certain value, while the other would base the fee on a merchant’s annual turnover.
According to government sources, one proposal suggests applying an MDR of between 0.3 percent and 0.5 percent on UPI payments above Rs 2,000 for merchants with an annual turnover exceeding Rs 1.5 crore. At the same time, officials are also considering keeping UPI payments free for individual users and small businesses.
Financial analysts note that transactions above Rs 2,000 account for only about 4 percent of the total number of UPI payments, but represent nearly 67 percent of the total transaction value. This approach would allow the government to target high value commercial payments while limiting the impact on everyday users.
The proposed move could strengthen the financial sustainability of banks and fintech companies by creating a new revenue stream. However, it may also increase operating costs for large businesses. If merchants pass these additional charges on to customers, the prices of goods and services could rise.
The final policy will depend on Parliament’s approval of the bill, followed by detailed guidelines from the Reserve Bank of India and the Ministry of Finance.