Decades after adopting a zero-MDR policy to promote digital payments, India faces renewed debate over whether to impose fees on UPI transactions to sustain its rapidly growing digital infrastructure, risking a shift in user behaviour and the future of financial inclusion.
India’s payments policy is once again confronting an old question: who should pay for the machinery that keeps instant digital transfers running? Unified Payments Interface, better known as UPI, has become central to the country’s shift away from cash, but the zero merchant discount rate policy that helped it spread is now being reconsidered as lawmakers and industry groups argue that the system is becoming harder to sustain. According to ForumIAS’s discussion of the issue, the 2026 amendment bill opens the door for charges on certain electronic payment modes, reviving a debate that was largely settled in favour of free transactions from 2020. The Hindu and industry analyses cited in the related material frame the issue as a trade-off between scale and sustainability.
UPI’s rise has been extraordinary. Launched in 2016 and backed by the National Payments Corporation of India, it was designed to make bank-to-bank transfers fast, cheap and easy to use. The zero-MDR policy introduced in 2020 was meant to accelerate adoption by removing a fee that had often discouraged merchants from accepting digital payments. PwC has noted that this helped broaden acceptance, especially among smaller merchants who were previously wary of card-related costs. ForumIAS says the result was a massive expansion in usage, with monthly transactions crossing 21.7 billion by early 2026 and total value above ₹28.33 lakh crore.
But the apparent freedom of the system has hidden costs. Under a zero-fee model, banks, payment processors and app providers still have to pay for routing, settlement, security, dispute handling and fraud monitoring, even if they cannot easily recover those expenses. PwC argues that this creates pressure on margins, especially for small merchants and service providers that rely on thin transaction economics. Terra Insight has also highlighted the legal complexity around zero-MDR rules and the risk that fees can reappear indirectly even when the formal policy says otherwise. ForumIAS says the result has been uneven incentives, with weak returns making it harder to justify sustained investment in safeguards and infrastructure.
The policy reversal now being discussed would allow charges on specified digital payment modes, with ForumIAS reporting that the proposed MDR on higher-value UPI transactions could range from 0.25% to 0.5% on payments above ₹2,000. The article notes that such transactions account for only a small share of total volume but a much larger share of total value, which means the impact would be concentrated among bigger payments. Clearing Post has reported that parliamentary discussion has already raised the idea of a tiered MDR structure for large merchants, while the Payments Council of India has urged the government to reconsider the zero-fee approach altogether.
Supporters of a charge say the current model cannot remain financially realistic indefinitely. They argue that digital payment infrastructure must be funded if it is to remain reliable, secure and inclusive. Critics, however, warn that even a modest fee could alter behaviour at the margin, particularly if merchants pass the cost on to consumers or shift back towards cash for smaller purchases. The broader concern is that India could weaken one of its most successful formalisation tools if pricing is changed too abruptly. A more durable answer, the related reporting suggests, would be a transparent framework that protects UPI adoption while ensuring the companies and institutions that run the system can invest in its future.
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