In a major policy reversal, the Reserve Bank of India has officially approved the implementation of a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions. The decision, confirmed through regulatory documents issued late last week, comes more than a year after the government firmly denied any plans to introduce fees on the popular digital payment platform.
Previously, finance ministry officials had repeatedly stated that UPI would continue to operate without any merchant discount charges, positioning the zero-MDR model as a cornerstone of India's digital payments success. However, the newly notified framework allows payment facilitators and acquiring banks to charge merchants a small percentage on UPI transactions above certain thresholds.
Under the revised structure, merchants processing more than Rs 2,000 through UPI will face a cap of 0.9 per cent on their transaction costs. This change affects both small retailers and large corporate merchants using digital payment systems. Industry sources indicate that the policy was developed after extensive consultations with banks, fintech companies, and merchant associations who argued that maintaining a free UPI model was becoming unsustainable given the growing volume of transactions.
The RBI emphasized that consumer-facing transactions will remain free, meaning individuals making payments through UPI will not see any additional charges on their apps or statements. Only merchants accepting payments will be subject to the new fee structure.
Digital payments in India have witnessed exponential growth, with UPI processing over 12 billion transactions monthly in recent months. Payment industry stakeholders have long debated the sustainability of the zero-MDR model, with banks citing increasing infrastructure and operational costs. Small business owners have expressed concern about the additional burden, particularly those operating on thin margins who may pass on costs to consumers or struggle to absorb the charges entirely.
