Business EconomyPosted at: Sep 17 2026 2:01PM


New UPI charge on big merchant payments aims to fund digital payments growth: Industry leaders

Arti Bali,
New Delhi, Sep 17 (UNI) Industry leaders have backed the government’s newly-introduced Merchant Discount Rate (MDR) on select UPI merchant transactions, arguing that the charge will facilitate sustained investment in India’s digital payments ecosystem and extend UPI’s reach to smaller merchants in rural and semi-urban areas.
The government set a 0.4 per cent charge on UPI payments above Rs 2,000 to merchants and capped the fee at Rs 300 for payments of Rs 75,000 and above as it rolled out a framework for large digital merchant payments.
BillDesk Co-founder and Director Srinivasu M.N. said the fee would be paid by merchants and would largely flow to banks, payment aggregators and other ecosystem participants rather than to the government. “This is a small charge that the merchants will pay, which will largely go to the banking system and to payment enablers, like payment aggregators and the other participants in the ecosystem,” he said, adding that it would help recover investments made over the past four to five years and fund further expansion.
“Thousands of crores of rupees have been invested by the banks and the non-bank ecosystem. This is going to help us invest more as we go deeper into UPI,” he added.
Srinivasu said the key objective is to bring UPI to populations still outside the digital payments net. “This is going to have significant benefits for the very small merchants and for the consumers who are not the first 500 million,” he said, calling the push a possible “force multiplier for the GDP growth of this country.’’
MobiKwik Co-founder, MD & CEO Bipin Preet Singh called the move “a positive step towards a more sustainable payments ecosystem,” noting that at 0.4 percent, the new charge remains far below the 1.6-1.8 percent typically charged on credit-card transactions.
“Importantly, the framework is targeted at higher-value merchant transactions. Everyday payments and person-to-person (P2P) transactions remain free, while small merchants are also protected from the impact,” Singh said.
Corporate stakeholders opined that the move would create a revenue pool from larger-value merchant payments without changing the payment experience for most consumers and small businesses.
Singh also highlighted the relatively lower MDR compared with credit-card transactions.
For the industry, this is an important shift from a zero-MDR model towards a more sustainable economic framework.
Devam Sardana, Business Head, Lemonn, said that a 0.4% MDR can provide “greater predictability to the payments ecosystem,” but the broader economics will depend on transaction volumes and how the revenue is distributed across banks, payment service providers and UPI apps.
As the fee applies to higher-value transactions, merchants may increasingly evaluate the relative economics of UPI alongside cards, wallets and bank transfers. Industry is of the view that the move could also reshape cashback models, “prompting fintechs to assess incentives more closely against customer value, engagement and sustainable unit economics.”
However, a LocalCircles survey of over 32,000 merchants across 242 districts found only 17 percent were willing to absorb the 0.4 percent rate, with 41 percent unwilling to bear any MDR at all. Acceptance dropped sharply as the rate rose — from about half of respondents willing to pay 0.04 percent to just 25 percent at 0.25 percent or higher. A separate survey found 53 percent of UPI users said they would consider switching to credit cards, debit cards or cash if merchants passed the charge on to them for transactions above Rs 3,000.
When asked about the concerns of the common man, Srinivasu said the fears were “completely unfounded” and reiterated that regulators had barred merchants from passing on the cost.UNI AAB RSA
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