New MDR Policy Discussions for UPI and RuPay
Initial discussions indicate that Unified Payment Interface (UPI) and RuPay debit card transactions may soon be subject to a Merchant Discount Rate (MDR) of up to 0.4%. This proposed charge would specifically apply to payments exceeding ₹2,000 and target large merchants. The Rajya Sabha recently passed the Taxation and Other Laws (Amendment) Bill, 2026, setting the stage for these potential changes.
Sources familiar with the deliberations confirm that while the exact rate is still being finalized, it is expected to be around 0.4%, with variations possible between UPI and RuPay transactions. Crucially, consumers will remain unaffected, continuing to use UPI free of charge. The policy is designed to impact only a limited set of transactions, leaving approximately 96% of all digital payments untouched.
Why Reintroduce MDR for Digital Payments?
The zero MDR policy for RuPay debit cards and UPI platforms was initially introduced in 2020 to accelerate the adoption of digital payment systems across India. However, the industry has since advocated for a review, highlighting the substantial costs associated with building and maintaining robust digital payment infrastructure.
Ecosystem players and the government have collectively borne expenses estimated between ₹15,000 crore and ₹20,000 crore annually to support the free UPI system. Proponents of the MDR reintroduction argue that a sustainable revenue model is essential for the continued expansion and innovation of digital payments, pointing to the success of Brazil's Pix system, which achieved over 90% adult adoption after starting in 2020.
Industry Welcomes Sustainable Model
The Payments Council of India recently emphasized the significant investments made by banks, payment companies, fintechs, NPCI, and RBI over nearly a decade in technology, cybersecurity, fraud prevention, and customer support. Industry leaders largely welcome the move to re-introduce MDR, viewing it as a step towards a more sustainable ecosystem.
Mehul Mistry, SVP at Zeta, noted that the government's approach aims to balance keeping digital payments free for consumers and small businesses while creating a viable revenue stream for the infrastructure providers. Anirban Mukherjee, CEO of PayU, echoed this sentiment, stressing the need for continuous investment in scaling infrastructure, cybersecurity, fraud risk management, and developing future payment innovations like AI-native solutions.
The proposed MDR would primarily affect a small segment of large merchants, estimated at 4-5%, who have historically promoted credit cards with higher MDRs over UPI or RuPay cards. This targeted approach seeks to ensure the long-term viability and growth of India's digital payment ecosystem without burdening everyday users or small businesses.