Experts warn that upcoming changes to merchant discount rates on UPI transactions could lead businesses to pass costs onto consumers via higher prices or fees, with minimal transparency, as government considers liberalising MDR regulations.
Payment experts say any future merchant discount rate on Unified Payments Interface payments could be difficult for consumers to spot, with businesses likely to recover the cost through higher prices or by relabelling it as a platform fee or convenience charge.
The warning comes after the government clarified on Saturday that any MDR would apply only to a limited group of merchants and not to customers. The discussion has intensified after the government proposed amending Section 10A of the Payment and Settlement Systems Act, 2007, through the Taxation and Other Laws (Amendment) Bill, 2026, to remove the blanket ban on charging MDR on UPI transactions.
Sai Krishna Musunuru, director and chief executive of Payinstacard, told Deccan Chronicle that merchants would probably absorb the fee as a business expense only in the accounting sense, while passing it through to buyers in pricing. He added that payment aggregators, which have carried the cost of running much of the UPI infrastructure, may also seek a way to monetise the system if charges are allowed again.
Other experts argue that any redesign of the fee structure would need clear safeguards for smaller businesses. Industry sources said the intent would be to limit MDR to specific merchants and transaction types, with large merchants and higher-value payments most likely to be affected, while small businesses and ordinary consumers would remain protected. Moneycontrol reported that the proposed charge could be set below 0.5% and apply to payments above ₹2,000, although no final decision has been announced.
The issue matters because UPI has become central to India’s digital payments system. According to industry data, it processed 2,366 crore transactions worth ₹29.9 lakh crore in July 2026 alone and is now live in 11 foreign countries. Under the current system, UPI payments carry no MDR, while debit card transactions for small merchants are charged at 0.40% and at 0.90% for other merchants, with credit card fees higher still.
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