The government is considering introducing a merchant discount rate (MDR) on UPI payments made to large merchants. The fee may be set below 0.5% and apply to transactions above Rs 2,000.

Key Highlights

• Government considers introducing MDR below 0.5% on UPI payments to large merchants above Rs 2,000.
• Parliamentary panel warned that zero MDR has made the UPI ecosystem financially unsustainable long-term.

What Is MDR and Who Would Pay It

MDR is a fee charged by banks for processing real-time digital transactions. "This is the proposal being considered by the government right now, and a decision on the same is expected within two weeks," a senior government source said, adding that the MDR will be levied only on large merchants and businesses.

The proposal does not involve charging consumers for using UPI. "The MDR is not about charging consumers for UPI transactions. The discussion is around merchant-side economics and sustainability of the payments ecosystem," the source said.

Why the Government Is Considering This Move

According to officials, UPI has expanded rapidly, but the cost incurred by banks and other payment ecosystem participants in maintaining the underlying infrastructure is also rising. There is a view that the model has to be commercially sustainable over time.

The central government currently provides incentives to banks and other payment system operators for low-value UPI transactions of up to Rs 2,000. The "Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI Transactions" was launched in FY22 to accelerate the adoption of digital payment platforms across demographic groups, modernise financial transactions, and promote financial inclusion.

A report by the Standing Committee on Finance, dated March 12, 2026, said zero MDR was introduced to make digital transactions affordable and widely accessible. However, it warned that the absence of MDR had made the UPI ecosystem financially unsustainable.

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UPI Could Grow Tenfold

The committee said UPI could expand tenfold in the coming years, supported by India's demographics, economic growth, and geographic reach. It projected that the platform could add another 600 million users and process 100-150 billion transactions a month over the next five to seven years. "However, achieving this scale is challenged by the slowing growth momentum of UPI and the structural funding gap, which limits ecosystem investment in infrastructure, security, and merchant onboarding," the report said.