Government Opens Door for UPI Merchant Charges, RBI Says ‘Someone Has to Pay’

The Centre has introduced amendments to the Payment and Settlement Systems Act in Parliament that could pave the way for merchant charges on certain UPI transactions in the future. While no fee has been approved yet, RBI Governor Sanjay Malhotra has said the country’s digital payments infrastructure cannot remain cost-free indefinitely, stressing that the debate is about who should bear the cost, not whether UPI itself should continue to grow.

Parliament bill creates legal framework

Parliament Bill Creates Legal Framework, Not Immediate Charges

The debate over charging merchants for UPI payments gained momentum after the government introduced amendments to the Payment and Settlement Systems Act in Parliament. The proposed legislation does not impose charges on UPI transactions. Instead, it removes the legal restriction that currently prevents the government from levying a Merchant Discount Rate (MDR) on eligible digital payments in the future.

Officials are considering different models, including a possible MDR of 0.3%–0.5% on UPI transactions above ₹2,000 made to large merchants. Small merchants and person-to-person UPI transfers are expected to remain outside the scope of any such proposal. No final decision has been taken, and the exact structure of any future charges will depend on subsequent government notifications if the legislation is enacted.

The Question Is Who Pays for UPI

Responding to the ongoing debate, RBI Governor Sanjay Malhotra clarified that the central bank has not decided to reintroduce MDR on UPI transactions. He emphasised that every digital payment system requires investment in technology, cybersecurity, settlement infrastructure and banking networks. While UPI appears free to users, those costs are currently borne by banks, the National Payments Corporation of India (NPCI) and government support.

Malhotra said the real issue is ensuring the long-term sustainability of India’s digital payments ecosystem. According to him, the debate should focus on identifying the appropriate funding model rather than assuming the infrastructure can continue operating without anyone paying for it. He also clarified that his remarks should not be interpreted as an indication that users will necessarily face charges.

What Could Change for Businesses and Consumers?

If the proposed framework eventually leads to the return of MDR, the charges would primarily apply to merchants, not individual customers. Businesses accepting UPI payments could pay a small processing fee to banks or payment service providers, similar to the existing fee structure for many card transactions. Some merchants may choose to absorb the additional cost, while others could reflect it in product pricing.

Supporters argue that a sustainable revenue model is essential as UPI continues to process billions of transactions every month. They believe banks and fintech companies need financial incentives to invest in infrastructure, innovation and security. Critics, however, warn that reintroducing merchant charges could discourage digital payments among small businesses and weaken one of India’s biggest digital public infrastructure success stories.

Why It Matters

UPI has transformed India’s payments landscape by making instant digital transactions accessible to millions of consumers and businesses. As the network expands, policymakers are increasingly balancing two priorities—keeping digital payments affordable while ensuring the ecosystem remains financially sustainable. The legislation introduced in Parliament is therefore less about introducing immediate charges and more about giving the government greater flexibility to decide how the UPI ecosystem should be funded in the years ahead.