The controversy over UPI merchant discount rates has reignited after Union Bank of India started charging fees on certain UPI transactions, breaking a long-standing informal moratorium on MDR for digital payments in India. The fee structure varies depending on transaction type and card, but has drawn ire from consumer groups and opposition politicians alike.
Rahul Gandhi, general secretary of the Indian National Congress, took to social media and public platforms to condemn the move, calling it a direct assault on ordinary citizens who rely on UPI for daily transactions. He demanded that the government restore the MDR-free status of UPI immediately, arguing that such charges would disproportionately affect small merchants and low-income users who have increasingly shifted to digital payments during and after the pandemic.
However, the government has maintained that the decision was taken by the Reserve Bank of India in line with its regulatory framework, and that no political intervention will alter the ruling. A senior finance ministry official stated that the UPI ecosystem remains robust and that the new charges apply only to select transaction categories, not to all everyday UPI payments made by consumers.
Background context reveals that India previously imposed a blanket ban on UPI MDR charges in 2020 under the Payment and Settlement Systems Act, a decision that played a major role in the platform's rapid adoption across the country. Since then, UPI has processed billions of transactions monthly, making it one of the world's largest digital payment networks. Financial institutions have long argued that the zero-MDR regime forced them to subsidize a service they were expected to profit from, creating structural imbalances.
The RBI had earlier indicated that merchants using UPI through debit cards could be subject to MDR charges similar to other card-based payments, but banks were asked to implement this gradually. Union Bank's action appears to be among the first clear examples of enforcement, prompting widespread confusion and public backlash.
