India considers merchant fees for UPI digital payments

The Indian government is considering introducing a Merchant Discount Rate (MDR) for the Unified Payments Interface (UPI), potentially ending a decade of free digital transactions for businesses. While consumer and person-to-person payments are expected to remain free, proposals suggest charging larger merchants or transactions above a certain threshold a fee of approximately 0.3% to 0.5%.

The debate stems from the high operating costs of the network, estimated at ₹20,700 crore annually. The Standing Committee on Finance has warned that current government subsidies may be insufficient to cover these costs, which are essential for maintaining cybersecurity, fraud prevention, and payment infrastructure.

UPI has seen massive growth since its 2016 launch, reaching 23.6 billion transactions in July alone. As the system scales, officials are weighing whether to restore merchant fees to ensure long-term sustainability or to gradually reduce government incentives.