Will UPI payments remain free? RBI Governor clarifies there is no decision yet on Merchant Discount Rate

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said it is too early to conclude whether Unified Payments Interface(UPI) transactions will attract a Merchant Discount Rate (MDR), even as the government's proposed amendments to the payment law have reignited the debate over the future of India's zero-charge digital payments regime.

Speaking after the Monetary Policy Committee (MPC) meeting, Malhotra said discussions around the Payment and Settlement Systems (Amendment) Bill, 2027 are still underway and the RBI's immediate focus remains strengthening the country's digital payments infrastructure rather than deciding how it will eventually be funded.

"The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen and become more efficient. We continue to do that. That is our primary focus as of now," the Governor said during the post-policy media interaction.

His remarks come amid speculation that the proposed amendments could eventually allow the government to reintroduce MDR on certain UPI merchant transactions, particularly higher-value payments.

The Bill does not impose MDR

The Payment and Settlement Systems (Amendment) Bill has been introduced in Parliament, but it does not levy MDR on UPI transactions or prescribe any fee structure. Any decision to introduce merchant charges would require a separate policy decision after the legislation is enacted.

Currently, UPI payments remain free for users and merchants covered under the zero-MDR framework introduced to accelerate digital payments. Unlike credit and debit card transactions, where merchants pay MDR to banks and payment networks, UPI merchant transactions do not currently attract such charges.

The Centre also operates an incentive scheme under which banks are reimbursed for eligible low-value UPI transactions made to small merchants, helping offset part of the cost of processing these payments.

Malhotra also noted that while users may not pay directly for UPI today, the costs of running the payments ecosystem are still borne somewhere within the economy.

"It may be the general economy... someone is paying the cost," he said.

Why the debate has resurfaced

The discussion has gained momentum as UPI has grown into India's dominant retail payments platform.

According to the National Payments Corporation of India (NPCI), UPI processed a record 23.66 billion transactions worth nearly ₹29.9 lakh crore in July 2026, the highest monthly value since the platform's launch.

The rapid growth has renewed questions over the long-term sustainability of the zero-MDR model, with banks and payment service providers arguing that maintaining and upgrading digital payments infrastructure entails significant costs.

However, Malhotra stopped short of endorsing any specific funding mechanism, saying it would be premature to speculate on whether MDR or another model would eventually be adopted. The RBI's priority, he said, is to continue investing in a payments ecosystem that remains efficient, secure and accessible.

For consumers, nothing changes immediately. UPI transactions remain free, and there has been no decision to impose charges on person-to-person or merchant payments. Any future move would require both a policy decision and detailed regulatory guidelines before it comes into effect.