Key Highlights

• Govt considers reintroducing Merchant Discount Rate on UPI payments above ₹3,000 to support payment infrastructure.
• Small‑value UPI transactions remain fee‑free; final decision expected within 1–2 months after stakeholder consultations.

According to reports, the government is considering a proposal to reinstate merchant charges on Unified Payments Interface (UPI)-based transactions worth more than Rs 3,000.

It was reported in March that banks had submitted a formal proposal to the Union government to reinstate Merchant Discount Rates (MDR) on UPI payments for large merchants. The fee could be reinstated for merchants with an annual GST-based turnover of more than Rs 40 lakh, according to the lenders' previous proposal.

However, the most recent report revealed that larger UPI transactions are more likely to incur a merchant fee, while small-ticket transactions are exempt.

MDR refers to the fee charged by banks to merchants for providing digital payment services. Currently, RuPay debit cards and Unified Payments Interface (UPI) payments are exempt from this fee.

According to the report, the PMO, Department of Economic Affairs, and Department of Financial Services met to review the current MDR policy framework.

A broader picture

The removal of MDR increased UPI adoption while also cutting off a key revenue stream for banks, fintech companies, and payment service providers. By 2024, the volume of UPI transactions had increased to 17,221 crore, while the total volume of digital payments in the country had reached 20,787 crore.

The total value of UPI transactions increased from Rs 5.86 lakh crore in 2018 to Rs 246.83 lakh crore in 2024, making it the most popular payment method in India.

Senior bankers and analysts had previously stated that a large retail merchant typically receives more than 50% of its transactions via card. They have already incurred charges for other payments. Thus, a similar arrangement can assist banks and payment providers in processing high-value digital transactions.

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The Payments Council of India, an industry body that represents digital payments companies, stated in a letter to the PMO on March 24 that banks, startups, and payment companies spend approximately Rs 10,000 crore per year, with UPI serving approximately 20% of Indian startups.

It was also reported that approximately 60 million merchants in the country accept digital payments, primarily UPI, with 90% classified as small merchants.

As a result, the zero-MDR regime is no longer viable in the current environment, and charges on high-volume UPI transactions can help recover these costs without negatively impacting small merchants or everyday users.