Summary
India is set to reintroduce MDR on UPI merchant payments (transactions above a threshold, likely ₹2,000) within about two weeks, ending the zero-MDR era since January 2020. The measure follows the Taxation and Other Laws Amendment Bill 2026, which enables the government to designate exempt channels and allow MDR on commercial transactions. It aims to make the world's biggest real-time payment system financially sustainable while protecting consumers and small merchants, but risks dampening the merchant network that drove UPI's scale.
Key Points
- UPI merchant transactions of ₹2,000+ could attract MDR (0.3-0.5%) within ~2 weeks
- Zero-MDR regime in place since Jan 2020; pre-2020 UPI carried ~0.3% charges
- Legal basis: Taxation & Other Laws Amendment Bill 2026 (amends Payment & Settlement Systems Act)
- Consumers + low-value retail remain free; merchants cannot pass MDR to customers (Sitharaman)
- High-value transactions (>₹2,000) are ~4% of merchant volumes but ~67% of value (Jefferies)
- Could generate up to ~$1B revenue for banks and payment companies
- UPI: 23.6B tx / ₹29.87 lakh cr in July; FY26 24,162 crore tx worth ₹314.23 lakh cr (CAGR ~60.9%)
- 550M+ users; 11 countries outside India
- Merchant acceptance was a key driver of UPI adoption (Motheram research)
- 79% of UPI volume / 82.7% of value via PhonePe + Google Pay (May 2026)
- RBI Governor: "Someone will have to pay the cost"
- Risk: if charges reach small merchants, expansion could slow; 75% of users say they'd quit UPI if fees (2024 LocalCircles)
- Recent regulatory focus: fraud detection, Kill Switch, Payments Switching Service