Finance Ministry moves to enable MDR on UPI — Here's what scrapping zero MDR provision means for UPI users

The Union Ministry of Finance has today proposed amendments to the Payment and Settlement Systems Act, 2007, which could in effect bring back merchant discount rates (MDR) on transactions done through the unified payments interface (UPI). Aimed at “funding UPI's next phase of growth”.

The amendments would allow the ministry to enable MDR on UPI and propose scrapping of the zero MDR provision under Section 10A, which bars banks and payments system providers (PSPs) from imposing charges on online payments.

What are Merchant Discount Rates?

Regulated by the Reserve Bank of India (RBI), merchant discount rate or MDR is the fee businesses pay to banks and PSPs to process online transactions made by customers.

Since 2020, this stands at 0% for UPI and RuPay debit card transactions as the Centre sought to promote digital payments and mandated no MDR for customers and merchants.

In practice, this works like this: A customer pays ₹1,000 for an item using credit or debit card, of this, a small percentage is deducted and split between the banks on the two ends, while the merchant receives the net amount. For UPI transactions at present, merchants receive the full transaction amount.

What does this decision mean for UPI customers?

Once the finance ministry's amendment bill is passed, it is expected to notify the rates that can be levied and the type of transactions it can be imposed for.

Notably, the bill does not propose any fees for consumers using UPI, which means the burden should fall on the merchants. For customers, this means that there should be no additional charges or transactions fees due to MDR.

Why is there proposal to bring back MDR on UPI?

About 88% of all digital transactions in India are UPI based, data from a March 2026 report by the Parliamentary Standing Committee on Finance showed. Banks and PSPs process more than 23 billion transactions worth around ₹30 lakh crore each month, it added.

The finance ministry's move comes on the back of the report's caution that zero MDR has made the UPI ecosystem “financially unsustainable” in the long run. It forecasted the platform adding 600 million additional users and to process 100-150 billion monthly transactions — but such expansion would require continous investment, which cannot be supported by government initiative alone.

Why is the industry pushing for MDR?

Notably, the 180-member industry body, Payments Council of India (PCI) had in March 2025 submitted a letter to the Centre seeking “urgent reconsideration of the zero MDR policy for UPI and RuPay debit card transactions”, .

Representing a number of non-banking payment players, PCI warned that the digital payments ecosystem is facing “pressing financial sustainability concerns” due to the zero MDR policy, and the government's ₹1,500 crore worth incentives to offset costs covers only a fraction of the estimated ₹10,000 crore annual cost required to maintain and expand UPI services.

To address the challenge, it proposed MDR on RuPay debit cards across merchants and MDR of 0.3% for UPI only for large merchants.

UPI: Key highlights for July 2026

• UPI transactions again reached a record high of ₹29.9 lakh crore in July 2026, data released by the National Payments Corporation of India (NPCI) showed.
• UPI transactions had earlier touched the record high of ₹29.9 lakh crore in May 2026.
• Data released on 1 August showed that UPI transactions in volume terms were 23.66 billion in July, higher than 23.2 billion in May and 22.72 billion in June.
• Value of transactions was ₹29.88 lakh crore in July, up from ₹25.08 lakh crore in the same month a year ago, registering 19% annual growth.
• UPI transactions in volume terms were 19.46 billion in June 2026.