UPI Users Won’t Be Charged Under New MDR Framework

The government has said users will not be charged for making payments through the Unified Payments Interface (UPI), after Parliament passed an amendment to the Payment and Settlement Systems Act, 2007, enabling the introduction of a Merchant Discount Rate (MDR) on certain transactions.

According to PIB, all person-to-person (P2P) UPI transactions will continue to remain free. It also said the vast majority of merchant transactions will remain free, while any MDR, if introduced, would apply only to a limited category of merchant transactions above a specified threshold.

The government said the amendment provides an enabling framework for the future sustainability and development of UPI, rather than introducing a charge on consumers.

What The Amendment Means

The amendment creates a legal framework under which an MDR could be introduced for specified UPI merchant transactions. MDR is a fee associated with processing a digital payment and is generally paid by the merchant rather than directly by the consumer.

The government said any MDR under the new framework would be limited and nominal, with the exact rate and applicable threshold to be decided by the UPI and Services Steering Committee headed by the National Payments Corporation of India (NPCI).

It also said any MDR introduced for eligible transactions would be significantly lower than rates typically associated with debit and credit card payments.

What It Means For Users            

The amendment does not mean that a fee will automatically be imposed on every UPI transaction. Instead, it creates a provision through which a differentiated fee structure could be applied to a limited category of merchant transactions.

The government said UPI's rapid growth in transaction volumes has increased the need for continued investment in infrastructure, cybersecurity, fraud prevention and technological development.

It said a financially sustainable model would be needed to support these investments and reduce reliance on subsidies as UPI expands.

For consumers, the government reiterated that person-to-person UPI payments will remain free. The majority of merchant payments will also remain free, while any charges would apply only to transactions meeting the conditions and thresholds determined under the new framework.

The government also rejected claims that the policy change was driven by external influence, describing such suggestions as "unfounded, completely false and misleading".

The amendment is intended to create a longer-term financial framework for India's digital payments infrastructure while retaining free access to UPI for consumers.

Despite the changes to its payment framework, the government said UPI remains an Indian achievement that has transformed digital payments in the country and gained wider global recognition.