Payments Council backs UPI merchant charges, says users, small businesses will remain exempt

The Payments Council of India (PCI) on August 7 supported merchant charges on Unified Payments Interface (UPI) transactions for larger businesses, stating the revenue would help banks and payment companies strengthen technology, cybersecurity and fraud prevention, while keeping payments free for consumers and small businesses.

PCI said small merchants, including kirana stores, should not be charged for accepting UPI payments. Any merchant service charge would be a commercial arrangement between merchants and payment providers, not a charge on customers.

“Banks, fintech companies, NPCI and the RBI have been investing in technology, cybersecurity, fraud prevention and innovation to maintain UPI’s reliability,” it said.


The statement follows the Lok Sabha’s passage of the Taxation and Other Laws (Amendment) Bill, 2026, which removes the legal bar on banks and payment service providers charging a merchant discount rate (MDR) on notified digital payment modes.

The amendment does not impose MDR itself. It allows the Centre to specify the payment modes on which charges may be permitted. Finance minister Nirmala Sitharaman said the NPCI-led UPI and Services Steering Committee would consider MDR after Parliament clears the Bill, stressing that no decision has been made.

Also Read: UPI apps could chase big-ticket transactions as MDR return looms

MDR is a fee paid by merchants to banks and payment companies for processing digital transactions. It has been zero on UPI payments since January 2020, leaving payment firms dependent on government incentives and revenue from cross-selling loans, insurance and investments.

ET first reported on July 16 that the Centre was considering bringing back MDR for large merchants. The fee could be set at 5-7 basis points and apply to businesses with turnover of Rs 1-1.5 crore or more, people aware of the matter had said. Peer-to-peer transfers and payments to small merchants are expected to remain free.

Banks and fintech firms have argued that the zero-MDR model does not generate enough revenue to fund infrastructure, security, merchant acquisition and customer support as volumes rise. UPI processed 23.6 billion transactions worth Rs 29.9 lakh crore in July, according to the National Payments Corporation of India.

A parliamentary standing committee in March recommended a graded MDR for larger merchants, alongside three years of incentives and cashbacks for low-value UPI payments in tier-3 to tier-6 cities.

A targeted MDR could create direct fee income for PhonePe, Google Pay, Paytm and other platforms and sharpen their focus on merchants handling higher-value purchases. PhonePe and Google Pay together controlled nearly 80% of UPI volumes in July.