Centre In Talks With Payment Firms To Ensure UPI Charges Aren’t Passed To Users: Sources

The central government has started discussions with payment aggregators and other stakeholders in the Unified Payments Interface (UPI) ecosystem to ensure.

That the newly introduced Merchant Discount Rate (MDR) is not passed on to consumers, according to sources on Thursday. The Finance Ministry is also working on a monitoring mechanism to prevent merchants from transferring the additional cost to customers. The move comes amid concerns that the new fee could make large UPI payments more expensive for users.

Under the revised framework, a 0.4 per cent MDR will be levied on person-to-merchant UPI transactions above Rs 2,000 from October 15. The charge will be borne by merchants rather than customers and will be capped at Rs 300 for transactions of Rs 75,000 or more.

Government Steps In To Safeguard UPI Users

Sources said the Finance Ministry has begun engaging payment aggregators and other participants in the UPI ecosystem to explain the new MDR structure and reinforce that the cost should not be recovered from consumers.

The government is particularly concerned that some merchants could attempt to offset the fee by raising product prices or imposing an additional charge on customers who choose to pay through UPI.

However, officials do not expect the new MDR to significantly affect the overall use of UPI. According to sources, transactions covered by the new charge are estimated to account for only about 4 per cent of total UPI transaction volume.

Sources also said the measure is unlikely to result in a major shift from digital payments to cash. RuPay debit card transactions will continue to remain free, irrespective of the transaction value.

The government also does not anticipate a significant inflationary impact from the MDR, given the relatively limited share of transactions that will be subject to the charge.

Finance Ministry Denies MDR Was Introduced Under US Pressure

The development comes amid a separate clarification from the Finance Ministry rejecting claims that the new MDR regime was introduced due to pressure from the United States.

The Department of Financial Services said the September 15 circular issued by the National Payments Corporation of India (NPCI) does not provide international credit card networks with an advantage over RuPay. Under the current framework, credit transactions through UPI can be made only using RuPay credit cards.

“The allegation that MDR has been introduced under any external influence is patently false and misleading,” the DFS said in a post on X.

The clarification followed concerns highlighted in the US Trade Representative’s 2026 report regarding the inability of US electronic payment providers to participate in UPI credit transactions on the same terms as RuPay.

The government has said the MDR is intended to establish a sustainable revenue model for the digital payments ecosystem. Person-to-person UPI transfers and most routine merchant transactions will continue to remain free under the new framework.