Consider bringing back revenue mechanism on UPI for sustenance of sector: Parliamentary committee

The Standing Parliamentary Committee on Finance has recommended bringing back graded merchant discount rate (MDR) on Unified Payments Interface, echoing a long-standing demand of the payments industry to allow direct revenue generation on UPI payments.

“The committee would like to emphasise that establishing a viable revenue mechanism is critical to ensuring the UPI ecosystem achieves financial sustainability without perpetually straining the government exchequer,” the committee for 2026-27 said in its report published on March 12.

The committee also recognised the need for cashback and multi-year subsidy schemes to promote adoption of digital payments in tier-three to -six cities.


The Payments Council of India, the industry body for payment companies, has through multiple representations requested the government to consider bringing back MDR—a fee paid by merchants to banks for processing digital transactions.

In this year’s federal budget, the government set aside Rs 2,000 crore for the banking industry to compensate for the loss incurred for providing UPI and RuPay debit cards free of cost.

The committee said it expects 600 million new users to join the UPI ecosystem, effectively bringing around a billion users into the fold of digital payments. It projected UPI to scale to 150 billion transactions per month at its peak over the next five to seven years. Currently, the payment system records 20 billion transactions on average per month.

However, the committee noted that with the overall growth rate slowing down to 25% in FY26 from 42% in FY25, the adoption of the payment mode across the country is set to take longer, effectively impacting the government’s digital payments agenda.

“The current government incentive covers merely 11% of the industry’s actual costs and 14% of potential MDR collections, creating a structural funding gap impacting long-term infrastructural investment,” the report said.

Looking at the incentive scheme that is currently being run by the government, the committee noted that UPI is growing only in large urban pockets, with many smaller towns still not showing adoption.

In 2024-25, the UPI ecosystem recorded 185 billion transactions, or 91% of the 203 billion initial target for the fiscal year. In the current financial year, as of December, around 77% of the 230 billion transaction target had been achieved.