Industry executives said the move, if implemented, could fundamentally reshape competition in the payments ecosystem by shifting the focus from consumer acquisition to merchant servicing
The proposed reintroduction of merchant discount rate (MDR) on select unified payments interface (UPI) transactions is being welcomed by fintech companies, which see the move as a long-awaited step towards making India’s digital payments ecosystem financially sustainable.According to people familiar with the discussions, the MDR on UPI is likely to be in the range of 25-30 basis points and may apply only to high-value merchant transactions, likely above ₹2,000 and large commercial entities. The thresholds and exemptions, however, are still being finalised, with the government expected to take the final call.Industry executives said the move, if implemented, could fundamentally reshape competition in the payments ecosystem by shifting the focus from consumer acquisition to merchant servicing.“Till now, fintechs were largely focused on the consumer side of UPI, but with this, the focus shifts to merchants and the kind of merchant base one has,” said the founder of a fintech start-up, adding that companies with deeper merchant networks stand to benefit the most.Another Bengaluru-based fintech founder described the proposal as an encouraging first step. “What I understand is that it will take some time, but it is a good start,” the founder said.The proposal gathered momentum after RBI Governor Sanjay Malhotra stated, following the Monetary Policy Committee meeting, that India needs to continue investing in its digital payments infrastructure, whether through MDR or other mechanisms. While the RBI is expected to frame the operational rules, industry executives said the decision to levy MDR is ultimately a policy matter for the Centre.Digital transactionsMDR is the commission paid by merchants to banks and payment service providers for processing digital transactions. Consumers are not charged. While debit and credit card payments already attract MDR—typically around 80-90 basis points for debit cards and up to 250 basis points for credit cards—UPI merchant transactions have remained MDR-free since January 2020.On August 3, the government introduced a Bill in Parliament to amend provisions of the law that had effectively barred banks and payment firms from charging MDR on specified digital transactions, reviving hopes that the fee could return in a limited form.“The ecosystem spends anywhere around ₹10,000-12,000 crore every year to power UPI transactions. Of this, the government gives only about ₹2,000 crore by way of incentives. The rest gets absorbed by the ecosystem,” said a fintech executive requesting anonymity.Shauryam Gupta, Chief Executive Officer of Rupeezy, said that a capped MDR on high-value business transactions would help bridge the structural funding gap without affecting small merchants, who account for the bulk of UPI volumes.Brokerage Jefferies estimates that a 15-30 basis point MDR on merchant payments above ₹2,000 could generate ₹5,000-10,000 crore in annual revenue for payment companies. Although such transactions accounted for only about 4 per cent of UPI volumes in FY26, they represented nearly 67 per cent of the total transaction value. Preliminary industry estimates suggest a 25 basis point levy could generate around ₹13,000 crore annually, providing payment firms with a meaningful revenue stream to invest in infrastructure, security and innovation.Published on August 5, 2026
