UPI MDR may return, but only some merchants will have to pay, Finance Ministry clarifies

Any future merchant discount rate (MDR) charges on transactions through the Unified Payment Interface (UPI) will be nominal and apply only to a limited set of merchant transactions, the finance ministry said on Saturday. A vast majority of merchant transactions, too, will not attract any fees, it said.

“As and when MDR charges are introduced, they will apply only to a limited set of merchant transactions, above a certain threshold, at a nominal rate, far lower than debit or credit card MDRs,” it said. Consumers making payments will not face any transaction charges, the ministry said, and “MDR, if introduced, will only be threshold-based and not levied to all.”

Earlier this week, the Lok Sabha passed amendments to the Payment and Settlement Systems (PSS) Act, 2007. It allows the Centre to let banks and other service providers to levy charges on transactions made via UPI and other notified digital payment modes.


The ministry’s statement said reliance on subsidies alone is not viable for the next wave of growth for UPI and a balanced framework is required to ensure the payments platform remains robust, inclusive and future-ready. “With exponential transaction volumes, the system requires significant and continuous upgrades in cybersecurity, fraud prevention, and infrastructure,” it said.

It was necessary to boost competition by encouraging more companies to expand their operations, and that demanded a self-sustaining revenue model, the ministry added.

The PSS Act amendment is an enabling provision designed to ensure UPI’s longterm sustainability, technological advancement, and resilience against emerging risks. Many fintech executives have argued in favour of select merchant fees while assuring that the service will remain free for end consumers.