India’s government is exploring the possibility of reintroducing merchant discount rates on larger UPI transactions, aiming to address the financial strain on payment providers while maintaining free-to-use small transactions for consumers.
India’s government is once again weighing a return of merchant discount rate, or MDR, on some Unified Payments Interface transactions, a shift that would mark a notable change from the zero-fee model that helped make UPI the country’s default digital payment rail. According to Parliamentary Standing Committee on Finance concerns cited by Business Today, the present setup has become financially hard to sustain for banks and payment service providers, which have carried the cost of keeping the system running. source? wait no citations allowed in body. Need no markers. But we need source reference map only, no inline citations. body cannot have citations. good. We should avoid any weird markers. Let’s rewrite complete output without citations in body.
India’s government is once again weighing a return of merchant discount rate, or MDR, on some Unified Payments Interface transactions, a shift that would mark a notable change from the zero-fee model that helped make UPI the country’s default digital payment rail. The idea has resurfaced because policymakers and industry groups have argued that keeping the system free at the point of use has left banks and payment service providers bearing costs that are increasingly difficult to absorb.
If the Payment and Settlement Systems (Amendment) Bill, 2027 moves ahead, it would give the Centre more flexibility to decide which kinds of digital payments should continue to enjoy zero MDR, rather than locking that rule into a blanket exemption. The proposal appears aimed at large-ticket, high-volume merchant payments rather than everyday retail use, with person-to-person transfers and small-shop payments expected to stay free.
That distinction matters for households. A purchase at a neighbourhood kirana store, a tea stall or an auto-rickshaw is still expected to remain outside the charge. The likely focus is on large merchants and online platforms, particularly transactions above ₹2,000 and businesses above certain turnover thresholds. In other words, the everyday UPI use that most consumers rely on would probably not change much, even if merchant charges return in a narrower form.
The government has also been careful to separate this debate from an earlier rumour about tax. In April, the Finance Ministry said claims that GST would be applied to UPI payments above ₹2,000 were “completely false, misleading and without any basis”. That clarification matters because any new MDR would be a merchant fee, not a customer tax, though businesses could still decide to pass some of the cost through in pricing.
Banks and payment firms stand to gain the most if MDR returns. Business Today, citing industry estimates, said SBI could see the biggest uplift, with other large public sector lenders and private banks also in line for extra fee income. Payment apps such as PhonePe, Google Pay and Paytm could benefit as well, because they currently earn little from merchant UPI flows. Jefferies has estimated the market could be worth ₹5,000-₹10,000 crore by FY2027-28 if MDR is set at 15-30 basis points, and the broker said the industry may prefer keeping that income to fund expansion rather than cutting prices in competition.
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