Potential Changes to UPI Payment Fees: What Consumers Need to Know

The Indian government is considering implementing Merchant Discount Rates (MDR) on UPI transactions, particularly for payments exceeding ₹2,000. While this could affect larger businesses, everyday consumers and small merchants may remain largely unaffected. The proposed changes aim to balance the need for a sustainable digital payment model while promoting continued growth in the UPI ecosystem. As discussions unfold, the impact on various stakeholders remains a key focus.

By Narendra Chaudhary Aug 5, 2026, 10:54 IST

Introduction to UPI Payment Changes

The Unified Payments Interface (UPI) has become an integral part of daily transactions for many Indians. However, recent reports suggest that the government may introduce fees for UPI transactions, leading to a decline in usage. A significant policy shift could be on the horizon as the central government has proposed an amendment to the Payment and Settlement Systems Act, 2007, which would allow for the implementation of Merchant Discount Rate (MDR) on UPI and RuPay debit card transactions.

Proposed MDR Rates

According to government sources, discussions are underway regarding the imposition of an MDR ranging from 0.25% to 0.40% on UPI payments exceeding ₹2,000 for business transactions. Some industry experts speculate that this rate could be as low as 0.05% to 0.07%. Importantly, transactions between individuals (Person-to-Person) will remain free of any charges, ensuring that personal payments among friends and family are unaffected.

Impact on Consumers

The government argues that the proposed changes will not significantly impact most consumers. Official data indicates that approximately 95% of UPI transactions are below ₹2,000, which means they would be exempt from MDR. Everyday small payments for items like groceries, vegetables, and transportation are likely to remain free. However, transactions above ₹2,000 account for about 65% of the total UPI transaction value, making them a crucial revenue source for banks and payment service providers.

Support for Small Businesses

The government is also considering measures to support small businesses. There are discussions about exempting merchants with annual revenues between ₹1 crore and ₹1.5 crore from MDR entirely. Reports suggest that fees may only apply to larger businesses and e-commerce platforms like Amazon and Flipkart, potentially shielding most small retailers from these charges.

Background on UPI and MDR

In January 2020, the government eliminated MDR on UPI and RuPay debit card transactions to promote digital payments and encourage merchant adoption. To compensate banks and payment service providers for revenue losses, the government has been providing a 0.15% incentive on UPI payments under ₹2,000. However, the payment industry has consistently argued that this support is insufficient, as operational costs, cybersecurity, and technological upgrades continue to rise.

Industry Perspectives

The Payments Council of India (PCI) has repeatedly called for the reinstatement of MDR, stating that current government incentives cover only about 11% of actual industry costs and approximately 14% of potential MDR revenue. Additionally, a parliamentary committee has raised concerns about the financial stability of the UPI ecosystem without MDR.

A Balanced Approach?

Experts believe the government is attempting to strike a balance with the proposed framework. Mehul Mistry, a senior vice president at fintech company Zeta, suggests that the new structure could keep digital payments nearly free for consumers and small merchants while imposing minimal fees on larger businesses, ensuring a sustainable income for banks and payment service providers.

Current MDR on Cards

Currently, MDR is already applied to credit and most debit card transactions, with fees reaching 2% to 3% for credit cards and varying within regulatory limits for debit cards. In comparison, the proposed UPI fees are expected to be significantly lower.

UPI's Rapid Growth

The remarkable success of UPI has fueled this debate. In July 2026, over 23.66 billion transactions were recorded through UPI, totaling approximately ₹29.9 lakh crore. From just 2 crore transactions in the fiscal year 2017, this number skyrocketed to over 241.62 billion by fiscal year 2026, with transaction values soaring from ₹7,000 crore to nearly ₹314 lakh crore. This rapid expansion highlights the success of the digital payment system but also presents challenges for maintaining the extensive technological infrastructure.

Conclusion

While the government has yet to clarify when and how MDR will be implemented, the proposed amendment signals a move towards balancing free digital payments with a sustainable financial model. If the proposal is enacted as currently outlined, everyday consumers and small merchants are likely to remain largely unaffected, while the modest fees from larger businesses could provide a solid foundation for the growing digital payment infrastructure.