The Indian government is considering a proposal to reintroduce a Merchant Discount Rate on UPI transactions for large merchants [1].
This shift would move the digital payments ecosystem toward a more sustainable financial model. By offsetting rising infrastructure costs, the government aims to ensure that the fast-growing payment network remains viable without relying solely on state or corporate subsidies [1].
Under the proposal, the fee would apply specifically to UPI transactions exceeding ₹2,000 [1]. The government intends to keep the service free for consumers, meaning the cost burden would fall on the businesses receiving the payments [1].
There are varying reports regarding which businesses would be targeted. Some reports state the fee applies generally to large merchants [1]. Other data suggests the government is targeting merchants with an annual turnover between Rs 1 crore and Rs 1.5 crore [2].
UPI has become the dominant method of payment across India, scaling rapidly over the last several years. However, the lack of a transaction fee for merchants has created a financial gap for the providers maintaining the underlying technology. Reintroducing the MDR is seen as a way to bridge this gap while protecting the user experience for the general public [2].
Government officials said the move is intended to balance the growth of digital adoption with the practical costs of maintaining a secure, high-volume payment infrastructure [1].
“The government intends to keep the service free for consumers”
The potential reintroduction of the Merchant Discount Rate signals a transition for India's digital economy from a subsidized growth phase to a commercial sustainability phase. While consumers will not see a direct cost, large merchants may either absorb these fees or potentially pass them on through higher product prices, despite the government's intent to keep the service free for the end-user.
