UPI Payments May Face MDR as Banks Push for Fee Reinstatement
India considers reinstating MDR on UPI payments as fintechs push for fees to offset costs. Govt weighs impact on merchants with turnover above ₹40 lakh.
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The Indian government is considering the reinstatement of Merchant Discount Rate (MDR) on specific Unified Payments Interface (UPI) transactions and RuPay debit card payments. The move follows persistent lobbying by banks and fintech firms, urging authorities to reintroduce transaction fees to offset operational costs.
According to an Economic Times report, banking institutions have proposed applying MDR on merchants with an annual GST turnover exceeding Rs 40 lakh. Currently, UPI transactions do not incur MDR, while debit card transactions are subject to a 0.75 per cent fee and credit card transactions attract approximately 1.75 per cent per transaction.
The financial sector has long advocated for MDR on National Payments Corporation of India (NPCI)-operated UPI payments. Banks and payment processors argue that the absence of MDR strains infrastructure and operational resources, including technology, staffing, and data centers. The growing volume of small-ticket transactions among street vendors and local traders has further increased processing costs.
In January 2025, UPI transactions exceeded 16.99 billion, marking the highest monthly record to date, as per official data. The rise in digital payments, particularly for low-value transactions, has intensified calls for MDR reinstatement to sustain the payment ecosystem.
On March 5, fintech firms discussed the matter with newly appointed Reserve Bank of India (RBI) Governor Sanjay Malhotra and government officials, according to Moneycontrol. The RBI acknowledged that the zero MDR policy contributed to UPI’s rapid expansion. However, industry leaders argue that government subsidies covering free transaction processing do not fully offset infrastructure expenses.
Banking experts contend that major merchants already pay MDR on transactions via Visa and Mastercard debit cards, as well as all credit cards. They argue that imposing charges on UPI and RuPay debit card transactions for high-turnover merchants aligns with existing policies on digital payments.
The government is evaluating the proposal amid ongoing discussions with stakeholders. A final decision is expected after comprehensive consultations with regulatory authorities and industry representatives.
