The government may reintroduce merchant discount rate charges on UPI and RuPay transactions for large merchants, impacting the digital payments landscape.
The Central government is contemplating the reintroduction of merchant discount rate (MDR) charges on transactions facilitated by the Unified Payments Interface (UPI) and RuPay debit cards, reported The Economic Times. This proposal, now under consideration by relevant departments, was initiated by banking institutions. The MDR, previously eliminated to encourage digital payments, could soon apply to merchants with an annual turnover exceeding Rs 40 lakh.
With the MDR waiver having been in place since the FY22 budget, the government is exploring the implementation of a tiered pricing system. This would see larger merchants facing higher charges, while those with turnover under Rs 40 lakh would continue to enjoy free transactions. "The logic is that if large merchants who have card machines are paying MDR on other payment instruments like Visa and Mastercard debit cards and all forms of credit cards, then why can they not pay charges for UPI and RuPay debit cards?" explained a senior banker involved in the discussions.
Prior to the removal of MDR fees, merchants paid less than 1% of the transaction amount as MDR to banks. The reinstatement aims to level the playing field as UPI and RuPay have become dominant in retail payments. Industry voices suggest larger merchants are already accustomed to paying MDR on other platforms and can absorb similar charges on UPI and RuPay transactions.
One of the primary motivations for reinstating these charges is the financial sustainability of payment aggregators and fintech firms. "Payment companies are now regulated under PA-Online rules. Their compliance cost has shot up tremendously; if they cannot make money on payments, then businesses will become unviable," noted a leading banker.
Industry insiders highlight that while the government has subsidised banks and fintechs to offer these services free of charge, the current allocation of Rs 437 crore for payment subsidies is insufficient compared to the previous Rs 3,500 crore. Banks are reportedly still awaiting overdue subsidy payouts from the previous year.
The National Payments Corporation of India (NPCI) reported that UPI facilitated 16 billion transactions in February 2025, amounting to nearly Rs 22 lakh crore. The sheer volume of transactions underscores the critical role of UPI in India's digital payment ecosystem, but also highlights the financial strain on service providers operating without MDR.
As the government weighs these considerations, the potential reintroduction of MDR charges remains a contentious issue, with implications for large retailers and the broader digital payments landscape. Payment industry executives continue to engage with policymakers, seeking a resolution that balances financial sustainability with the growth of digital transactions.