UPI transactions might no longer be free, as the Payments Council of India (PCI) has suggested reintroducing charges for UPI and RuPay transactions. This comes after the government reduced financial support for these services.
Why Might UPI Transactions Start Charging Fees?
The PCI, an industry body for digital payments, has asked the government to bring back the Merchant Discount Rate (MDR). MDR is a small fee that businesses pay banks for processing digital payments. Before 2020, merchants used to pay less than 1% as MDR for UPI transactions, but the government made UPI and RuPay transactions free from January 1, 2020, to encourage digital payments.
Since then, banks and payment apps like Google Pay, PhonePe, and Paytm have been processing UPI transactions for free. The government provided financial incentives to cover some of these costs, especially for small payments below ₹2,000. However, these incentives have been reduced by 60%—from ₹3,500 crore in 2024 to just ₹1,500 crore in 2025.
What is MDR?
MDR (Merchant Discount Rate) is a fee that businesses pay banks for processing digital payments. For credit and debit cards, MDR usually ranges from 1% to 3% of the transaction amount. However, UPI and RuPay transactions have been free so far.
For example, if you pay ₹5,000 using a credit card with an MDR of 2%, the shopkeeper has to pay ₹100 (2% of ₹5,000) to the bank. But if you pay via UPI, the merchant currently pays nothing.
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Why is the Industry Asking to Bring Back MDR?
UPI transactions have grown massively, with 16 billion transactions worth ₹22 lakh crore processed in February 2025 alone. While this growth is great, running the UPI system is expensive. The industry estimates that maintaining and improving UPI services costs around ₹10,000 crore per year, but the government’s subsidy for 2025 is only ₹1,500 crore.
To keep the system running smoothly and invest in security, technology, and merchant onboarding, the industry believes bringing back MDR is necessary. They propose a small MDR fee of 0.3% on UPI and RuPay transactions—but only for large businesses that already pay MDR on other digital payment methods.
How Will This Affect You?
If MDR is reintroduced, businesses might:
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Increase product prices to cover the extra cost.
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Charge customers directly for UPI payments.
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Encourage cash transactions to avoid paying MDR fees, which could slow down India’s digital payments growth.
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The government has not yet made a final decision, but if MDR is reinstated, it could change the way people use UPI for daily transactions.
