No More Free UPI Payment? RBI, NPCI, Finance Ministry Set Sights on UPI Merchant Fees

India’s central bank, the Reserve Bank of India (RBI), along with the National Payments Corporation of India (NPCI) and the Ministry of Finance, is urging the central government to approve a small transaction fee on Unified Payments Interface (UPI) payments made to large merchants.

The proposed fee known as the Merchant Discount Rate (MDR) would range between 0.2% to 0.3% of the transaction value, according to sources familiar with the discussions as per Reuters report.

This development, if implemented, would still make UPI more cost-effective than conventional debit or credit card transactions, which generally carry higher MDRs. The goal behind introducing this modest fee is to bolster investment in India’s rapidly expanding but under-monetised digital payments ecosystem.

Building a Self-Sustaining Payments Ecosystem

Industry stakeholders argue that charging MDR on large merchant payments is essential to maintaining the health and scalability of the digital payments infrastructure.

Unlike traditional card systems, UPI has largely operated without any fee burden on merchants or customers, a model that, while popular, limits revenue opportunities for payment service providers.

A Strategic Move for the Digital Economy

India’s drive toward a cashless economy has gained significant momentum since the 2016 demonetization and the COVID-19 pandemic, both of which accelerated the adoption of digital payments.

UPI, the country’s flagship real-time payments platform, has seen explosive growth, with monthly transaction volumes increasing from 1.6 billion to over 17 billion in just five years.

In March alone, UPI transactions totaled ₹24.7 trillion ($289.65 billion), with more than a quarter of these payments routed to merchants. However, growth has slowed, with the value of monthly UPI transactions rising by only 25% in 2025, down from 35% in 2024—a trend raising concerns about long-term sustainability.

Read More: GST on UPI Over ₹2,000? Here’s What You Need to Know.

Industry Backing and Lobbying Efforts

Major UPI players like Walmart-backed PhonePe and GooglePay have long advocated for MDR charges to be introduced on merchant transactions.

In support of the move, the Payments Council of India (PCI) has submitted a formal request to the PMO advocating for a 0.3% MDR fee on large merchant UPI transactions, citing the need to ensure continued innovation and infrastructure development in the payments sector.

Conclusion

Introducing a minimal MDR on large merchant UPI transactions could represent a significant shift in India’s digital payments landscape. While it promises to create a more balanced and sustainable ecosystem for payment providers, the challenge will lie in implementation without undermining the broad consumer appeal of zero-cost UPI transactions.

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