0 months ago
UPI Users Unlikely to Pay Fees Even If MDR Allowed
UPI is a way people in India send and receive money using their phones.
Right now, using UPI costs users nothing, but banks and payment companies still spend money to keep it working.
The government is thinking about whether shops and businesses should pay a small fee called MDR for UPI payments.
A new bill would let the government decide this in the future, but it does not add any charges right away.
A research report from Bernstein says regular users probably will not have to pay anything.
Instead, merchants would likely pay a small fee of 0.30% to 0.40% on eligible payments.
Very big payments above ₹2,000 are only about 4% of all UPI payments, yet they carry nearly 70% of the money moved.
Small shops and small payments would probably stay free, similar to the RuPay credit card framework.
The RBI Governor said it is too early to know if UPI will ever have charges.
For now, UPI remains free for everyone who uses it.
Bernstein says UPI consumers are unlikely to pay charges even if the government allows a Merchant Discount Rate (MDR) on UPI transactions.
A merchant-funded MDR of 30-40 basis points (0.30%-0.40%) appears the most likely outcome if charges are permitted, per Bernstein.
The Taxation and Other Laws (Amendment) Bill, 2026 removes UPI's automatic statutory MDR exemption but does not impose any charges immediately.
Transactions above ₹2,000 account for only around 4% of UPI transaction volume but contribute nearly 70% of total transaction value.
RBI Governor Sanjay Malhotra said it is premature to conclude whether UPI transactions will attract charges.
- Who
- UPI users, merchants, the Government of India, the Reserve Bank of India (RBI) and its Governor Sanjay Malhotra, brokerage firm Bernstein, and the National Payments Corporation of India (NPCI).
- What
- A debate over whether UPI transactions should attract a Merchant Discount Rate (MDR), after a bill proposed removing UPI's automatic exemption; Bernstein says users would likely remain unaffected.
- Where
- India
- When
- Report cited and RBI Governor's remarks made on 5 August; the Taxation and Other Laws (Amendment) Bill, 2026 is under consideration.
- Why
- Banks, NPCI and payment companies incur costs to process UPI transactions and maintain digital payments infrastructure, prompting discussion on how those costs should be met.
Keep UPI Free of Charges
Allow MDR Monetisation
Introducing MDR on UPI
Keep UPI Free of Charges
There is a credible case for retaining the current framework, since free UPI lowers cash handling costs, reduces ATM usage and boosts digitisation; adding MDR could raise small merchants' costs by around ₹150 per month.
Allow MDR Monetisation
Payment platforms need to monetize their infrastructure investments, and a merchant-funded MDR of 30-40 bps is a practical way to do so, with high-value transactions offering the biggest monetisation opportunity.
Who should bear UPI costs
Keep UPI Free of Charges
Consumers should remain unaffected and small merchants and low-value transactions should stay exempt so free UPI benefits continue.
Allow MDR Monetisation
The costs have to be paid by someone in the payments ecosystem, whether through MDR or other means, so that public digital payments infrastructure keeps strengthening.
Key facts
- Proposed MDR
- 30-40 basis points (0.30%-0.40%), merchant-funded, if permitted
- Current status
- UPI transactions attract no MDR and users pay no fee
- Relevant legislation
- Taxation and Other Laws (Amendment) Bill, 2026
- Small merchant impact
- Possible extra cost of around ₹150 per month
- High-value transactions
- Above ₹2,000: ~4% of volume, ~70% of total value
- RBI Governor
- Sanjay Malhotra
- Likely exemptions
- Small merchants and low-value transactions
- Date of developments
- 5 August (Bernstein report and RBI Governor remarks)
Quotes
Bernstein
Global brokerage firm analysing payment industry
“"Based on debit card MDR benchmarks, RBI cost estimates, and comparable payment instruments, we believe an MDR of 30‑40bps is the most likely outcome."”
livemint.com
“"a merchant‑funded MDR of 30‑40 basis points (bps) appears to be the most likely outcome"”
livemint.com
RBI Governor Sanjay Malhotra
Governor of the Reserve Bank of India
“"It is very premature to talk right now. The government is still carrying out the amendment. The costs have to be paid by someone. We all want that this public infrastructure should continue to strengthen. Let's wait and watch for further developments on this."”
livemint.com
Sources
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