Archive · 11 Aug 2026
Economist challenges claim UPI merchant fee won't affect consumers
UPI is a system many people in India use to pay for things with their phones.
Right now, paying with UPI is free for everyone who uses it.
The government is thinking about letting companies charge shops a small fee for some payments.
Finance Minister Nirmala Sitharaman says customers will never have to pay this fee.
A famous economist called Ranade thinks that is wrong.
He says shops might make their prices higher to cover the fee.
That means customers could end up paying anyway.
UPI is very popular - people used it almost 24 billion times in just one month.
It became popular partly because it was free, like using cash.
The government says it has not decided anything yet, so for now payments stay free.
Finance Minister Nirmala Sitharaman said consumers and person-to-person transfers will remain free, and any future MDR would be paid only by merchants.
Economist Ranade called the claim that MDR won't affect consumers 'incorrect logic', saying merchants could pass costs on through higher prices.
The amendment to Section 10A of the Payment and Settlement Systems Act, 2007 removes the protection that had kept MDR at zero for UPI and RuPay payments.
Industry estimates UPI's annual cost at about ₹20,000 crore, while government reimbursement covers only a fraction of it.
Ranade suggested alternatives such as a transparent reimbursement mechanism funded partly by the RBI's ₹2.86 trillion dividend to the Centre, which is about 14 times the annual UPI cost.
- Who
- Finance Minister Nirmala Sitharaman, economist Ranade, and critics such as Ashneer Grover
- What
- Debate over a proposed enabling amendment that could allow a Merchant Discount Rate (MDR) on UPI transactions and whether it would affect consumers
- When
- Sitharaman spoke in the Rajya Sabha on a Monday; UPI transaction data cited is from July (exact dates not specified in the articles)
- Where
- India, including the Rajya Sabha and the newspaper Mint
- Why
- The amendment removes the protection keeping MDR at zero for UPI and RuPay, sparking debate over how to cover UPI's estimated ₹20,000 crore annual cost
Critics: MDR is unfair and will hurt users
Government: Consumers are protected; fees limited to merchants
Impact on consumers
Critics: MDR is unfair and will hurt users
Economist Ranade says the logic that MDR won't affect consumers is incorrect; merchants can absorb it or pass it on through higher prices.
Government: Consumers are protected; fees limited to merchants
Sitharaman says consumers will not pay any UPI charges, MDR would be paid only by merchants, and low-value merchant transactions would remain free.
Effect on UPI adoption
Critics: MDR is unfair and will hurt users
Ashneer Grover calls MDR on UPI a 'regressive step' that will kill mobile payments; Ranade says zero MDR was an important reason for UPI's rapid spread.
Government: Consumers are protected; fees limited to merchants
The finance minister says any future MDR would apply only to a limited category of merchant transactions above a prescribed threshold.
Who should pay for UPI's costs
Critics: MDR is unfair and will hurt users
Ranade says banks and payment companies should not be expected to subsidise UPI indefinitely and proposes a transparent reimbursement mechanism linked to audited costs, e.g., funded via the RBI dividend.
Government: Consumers are protected; fees limited to merchants
The government backs an enabling provision that lets the NPCI-headed steering committee consider whether and how an MDR should be introduced.
- UPI transactions (July)
- Nearly 24 billion
- UPI transaction value (July)
- Nearly ₹30 trillion
- Estimated annual UPI cost
- About ₹20,000 crore
- RBI dividend to Centre (2025-26)
- ₹2.86 trillion
- Amendment
- Section 10A of the Payment and Settlement Systems Act, 2007
- Small-ticket P2M share
- More than 85% of person-to-merchant transactions
- MDR framework status
- Not yet finalised; to be considered by UPI and Services Steering Committee headed by NPCI
- Who pays MDR
- Only merchants; consumers and P2P transfers remain free (per Sitharaman)