The Lok Sabha passed a bill authorizing the government to permit banks and other service providers to levy charges on UPI transactions [1].

This legislative shift marks a departure from the free-to-use model that has driven the rapid adoption of digital payments across India. By enabling these charges, the government aims to create a more sustainable financial ecosystem for payment service providers, and generate new revenue streams [1, 2].

The legislation is an amendment to the Payment and Settlement Systems Act, 2007 [1]. Specifically, the update allows for the implementation of a merchant discount rate, known as MDR, on large UPI transactions [1]. Under this framework, the cost of the transaction is typically borne by the merchant rather than the end consumer.

Officials said the move is intended to create a level playing field for various payment service providers [1, 2]. Until now, the lack of a fee structure for UPI has placed a financial burden on the banks and technology firms that maintain the underlying infrastructure for these instant transfers.

Financial projections suggest the impact of this change will be significant. Analysts estimate that the potential revenue pool for payment platforms could reach between ₹5,000 and ₹10,000 crore by FY28 [3].

The bill was passed in New Delhi on Aug. 6, 2024 [1]. While the legislation provides the legal authority to levy these fees, the government will determine the specific thresholds and rates that define what constitutes a "large" transaction.

“The Lok Sabha passed a bill authorizing the government to permit banks and other service providers to levy charges on UPI transactions.”

This amendment signals a transition from the 'growth at all costs' phase of India's digital payment revolution to a phase of monetization. By introducing MDR on high-value transactions, the government is attempting to balance the public utility of UPI with the commercial viability of the banks and fintech companies that operate it. If implemented aggressively, this could lead merchants to either absorb the costs or pass them on to consumers for high-ticket items.