A Parliamentary Standing Committee on Finance has proposed exploring a tiered charging structure for the Unified Payments Interface (UPI) to ensure the long-term sustainability of India’s rapidly expanding digital payments ecosystem. The panel suggested that while small merchants and street vendors should continue to enjoy free transactions, larger businesses could be charged a fee for using the system.
Key Highlights
- Parliamentary panel proposes tiered UPI charges to ensure long-term sustainability of India’s rapidly expanding digital payments ecosystem.
- Panel suggests large merchants may pay fees while small businesses continue enjoying zero-cost UPI transactions.
The recommendation comes amid growing concerns over the financial viability of the UPI ecosystem, which currently operates under a zero Merchant Discount Rate (MDR) policy introduced by the government in January 2020 to promote digital payments and support a less-cash economy. MDR refers to the fee merchants typically pay to banks or payment service providers for processing digital transactions.
According to the committee, the absence of transaction fees has created a funding gap for banks and payment service providers, which bear the costs of maintaining infrastructure, cybersecurity systems, and transaction settlement mechanisms. The Department of Financial Services (DFS) informed the panel that government incentives currently cover only around 11% of the industry’s costs and about 14% of potential MDR revenue, making it difficult for stakeholders to sustain the ecosystem in the long run.
To bridge this gap, the committee recommended a tiered model, where large merchants or businesses could pay MDR on UPI transactions, while smaller merchants with limited turnover remain exempt to preserve the platform’s accessibility. Such a structure aims to balance the objective of keeping digital payments affordable for small businesses while ensuring a sustainable revenue stream for financial institutions.
Also Read: UPI 2026 Revamp: New KYC, Transaction Checks & Faster Refunds
UPI has become one of the world’s largest real-time payment systems, handling billions of transactions every month and significantly accelerating India’s shift toward digital payments. Government officials estimate that the system could expand dramatically in the coming years, potentially adding hundreds of millions of new users and processing up to 100–150 billion transactions monthly as digital adoption spreads across smaller towns and rural regions.
However, policymakers have emphasized that continued government support remains critical to maintain infrastructure and encourage innovation in the digital payments sector. Without adequate funding or a sustainable fee mechanism, the committee warned that expansion into underserved regions and ongoing technological upgrades could face constraints.
The proposal is expected to trigger a wider policy debate involving banks, fintech firms, merchants, and regulators as India seeks to balance financial sustainability with the goal of universal digital payment access.
