Government mulls Merchant Discount Rate (MDR) on High-Value UPI Transactions to Ensure Ecosystem Sustainability
The Indian government is currently evaluating a proposal to introduce a Merchant Discount Rate (MDR) on UPI payments for large businesses, specifically targeting transactions exceeding ₹2,000.A senior government source confirmed that the proposed fee may be set below 0.5 percent. The decision on this regulatory shift is expected to be finalized within the next two weeks.
This move marks a potential shift in how digital payments are structured for large-scale commerce. Officials clarified that the proposal is exclusively aimed at large merchants and businesses rather than individual retail sellers.
Impact on Consumers Remains Neutral
Sources have emphasized that there is no intention to charge consumers for using the UPI platform. The primary objective of the proposed MDR is to address merchant-side economics and ensure the long-term viability of the payments infrastructure.While the government has championed the zero-MDR model to drive rapid adoption, officials noted that the costs incurred by banks and payment system participants are rising as the volume of transactions scales.
The government currently provides incentives for low-value UPI transactions up to ₹2,000 through the "Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI Transactions." This scheme was launched in FY22 to modernize financial transactions and promote financial inclusion across diverse demographics.
Balancing Growth with Financial Sustainability
The push for a sustainable model comes after reports highlighting the structural challenges of a free transaction model. A Standing Committee on Finance report dated March 12, 2026, noted that while zero MDR made digital payments accessible, it has led to an unsustainable financial position for the UPI ecosystem.Experts suggest that while India's demographics and economic growth provide a massive runway for expansion, the current funding gap limits essential investments. This includes infrastructure development, security enhancements, and merchant onboarding processes.
The committee projects that the platform could add another 600 million users and process between 100-150 billion transactions per month over the next five to seven years. However, achieving this scale requires a model that can support such immense volume without compromising the stability of the underlying payment architecture.
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