The government is reportedly weighing a proposal to reinstate Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) and RuPay-powered debit card transactions, especially for large merchants. According to two senior banking officials, the move could affect major retailers who have been benefitting from fee waivers. This proposal, currently under discussion, could mark a shift in the government's approach to UPI payments, which have been free for consumers and merchants alike. The reinstatement of MDR charges would likely raise transaction costs for large-scale businesses, potentially impacting the overall cost structure of digital payments.

The Merchant Discount Rate (MDR), a fee paid by merchants to banks for processing real-time payments, is currently not applied to transactions made through UPI and RuPay debit cards. However, banking industry representatives have officially proposed to the Union government the reintroduction of MDR for businesses with an annual Goods and Services Tax (GST)-linked turnover exceeding Rs 40 lakh. The government is said to be considering a tiered pricing model, where larger merchants would face higher charges, while smaller businesses, with turnover below Rs 40 lakh, would continue to benefit from free UPI transactions. This proposal could lead to a shift in how digital payment costs are structured, particularly for large-scale retailers.

“If large merchants accepting Visa and Mastercard debit cards, as well as credit cards, are paying MDR, there is no reason why they should not pay a charge for UPI and RuPay debit cards”, says Senior Banker .

Merchants previously paid an MDR of less than 1% on transaction values before the government waived the fee in the Union Budget for FY22 to encourage digital payments. However, with UPI now dominating retail transactions and RuPay gaining ground, banking executives argue that the blanket waiver should be reconsidered.

Industry leaders emphasize that reinstating MDR is crucial to the financial stability of payment service providers. A banker noted that payment companies, now regulated under PA-Online rules, face higher compliance costs, and without MDR, these businesses could become unsustainable.

Furthermore, the government's budget for digital payments subsidies has been drastically reduced, from over Rs 3,500 crore to just Rs 437 crore in FY25, creating additional concerns. Several banks are also still awaiting pending subsidy payments from the previous fiscal year.

Fintech executives recently raised concerns about potential revenue losses from free UPI services during a meeting with the new Reserve Bank of India (RBI) Governor, Sanjay Malhotra. They argue that government subsidies are insufficient to cover the high costs of maintaining digital payment infrastructure.

UPI has firmly established itself as the dominant force in India’s digital payment ecosystem, processing 16 billion transactions worth Rs 22 lakh crore in February 2025, according to the National Payments Corporation of India (NPCI). As the government considers reinstating MDR charges, industry stakeholders, including merchants, banks, and fintech companies, are closely monitoring the situation for any policy decisions that could significantly affect their operations.