Finance Ministry rejects US pressure claims over new UPI MDR, says RuPay has no special edge

The Finance Ministry on Thursday rejected allegations that US pressure influenced the decision to impose a 0.4% Merchant Discount Rate (MDR) on select UPI payments, saying the latest framework does not give international credit cards any advantage over RuPay on the platform.

The Department of Financial Services (DFS) issued the clarification in response to observations in the US Trade Representative's (USTR) 2026 report on the inability of US electronic payment service providers to participate in the UPI ecosystem, including credit transactions on UPI, on a level playing field with RuPay.

Also Read: Explainer -- India's UPI MDR shake-up: What changes and why it matters


"The NPCI circular of September 15, 2026, does not allow credit transactions on UPI by any other credit card other than the RuPay credit card. There is a clear policy of only allowing RuPay credit card on UPI to enable RuPay credit card to become the preferred choice of credit card amongst users in India," the DFS said in a post on X.

"The allegation that MDR has been introduced under any external influence is patently false and misleading," it added.

The clarification comes after some Opposition parties, including the Congress, alleged that the government had succumbed to US pressure while deciding to introduce the 0.4% MDR on select UPI transactions.

The Finance Ministry's response makes clear that the MDR decision is being presented as part of India's existing policy framework for UPI, under which only RuPay credit cards can currently be linked to UPI for credit transactions. The government has also said the new MDR is intended to create a sustainable revenue model for the payments ecosystem and enable more domestic companies to compete.

The National Payments Corporation of India (NPCI), which operates UPI, announced the revised MDR framework on September 15. It will take effect from October 15 and apply to select person-to-merchant (P2M) transactions above Rs 2,000. Consumers will continue to make UPI payments free of charge.

On the market-share ceiling for third-party application providers, the Finance Ministry said NPCI had mandated a 30% limit in November 2020. However, it said the cap could not be implemented because companies other than market leaders were unable to compete without a self-sustaining revenue model.

Also Read: UPI MDR above Rs 2,000 to attract 18% GST, merchants can claim input tax credit

"Introduction of MDR on select high-value transactions will provide a self-sustaining revenue model to smaller companies to compete for a higher share in the UPI ecosystem. Thus, the introduction of MDR has been done with the intention of allowing more domestic companies to expand their operations," it said.

NPCI has similarly argued that the new MDR framework would help create a sustainable model for the UPI ecosystem and support greater participation by domestic companies.

"Thus, the introduction of MDR is a step in protecting India's sovereignty in the electronic payment ecosystem," it said.

The government has also highlighted its promotion of RuPay credit and debit cards as evidence of its efforts to build a domestic alternative in the payments market. RuPay credit cards can be used on UPI, while the debit card segment remains free of MDR, the government said.

Under the new framework, a 0.4% MDR will apply from October 15 to P2M UPI payments above Rs 2,000. The charge is levied on merchants rather than consumers and is capped at Rs 300 for transactions of Rs 75,000 or more. UPI payments between individuals and transactions below the specified threshold will remain free.

For certain essential services, including railways, telecom, fuel and insurance, a flat Rs 5 fee will apply to transactions above Rs 2,000. Capital-market transactions such as mutual fund and stockbroking payments will attract a lower MDR of 0.02%, also capped at Rs 300.

Small merchants receiving up to Rs 1 lakh a month through UPI QR codes will remain exempt from MDR. NPCI has defined such merchants as small merchants under the new framework.

UPI QR payments to merchants in rural and semi-urban areas will also remain free. Five per cent of MDR collections will be channelled into a dedicated fund to expand UPI acceptance among small merchants.

The changes come as UPI continues to process billions of transactions each month. NPCI data show that UPI processed 24.51 billion transactions worth nearly Rs 29.82 lakh crore in August 2026.