Indian Payments Council states need for continuous investment for reliable UPI operation

Government officials reported that the proposed Merchant Discount Rate (MDR) percentage for UPI transactions will be a nominal amount and will only apply to a limited group of merchants when conducting transactions exceeding a set threshold.

At the same time, the government seeks to assure users that all peer-to-peer transactions will remain free, and consumers making payments will not face any charges.

It was noted that an MDR ranging from 0.25% to 0.4% may be permitted for UPI transactions exceeding the sum of 2000 rupees, while an upper limit for this commission is being established.

This change is viewed as part of the government's broader goal—ensuring the sustainability and competitiveness of India's digital payment infrastructure and its ability to serve the country's rapidly growing digital economy.

Samir Nigam, CEO of PhonePe, announced on Saturday in a social media post that consumers can continue to use the Unified Payments Interface (UPI) for free, even amid growing questions about potential charges for users and merchants.

Nigam emphasized that Indian consumers will not have to pay for making payments through UPI. This statement followed the enactment of the Lok Sabha Tax Law and other Acts (Amendment) 2026, which amends the Payment and Settlement Systems Act of 2007. These changes grant the government the authority to determine which digital payment methods remain free and which may be subject to fees.

UPI Fees

The Payments Council of India (PCI) stated on Friday that consumers will retain the ability to use UPI without payment. Furthermore, it was noted that small traders will not be required to pay MDR for accepting payments via UPI. PCI clarified that service charges for merchants are commercial agreements between merchants and payment service providers, and this does not mean that consumers are paying for the use of digital payments.

The council also noted that such charges, if applicable, will be commercial agreements between merchants and payment service providers. It was stated that customers will not have to pay for transactions in large stores.

According to Moneycontrol, the current proposal may involve an MDR of 0.25–0.4% for certain business-oriented UPI transactions exceeding 2000 rupees. However, person-to-person payments will not fall under this rule.

UPI Infrastructure

In its statement from Friday, PCI reported that UPI was launched in 2016, and since then, banks, fintech companies, NPCI, and RBI have invested in technology, cybersecurity, fraud prevention, compliance, innovation, and customer support. PCI stressed that the functioning of the national payment infrastructure requires continuous investment in technology, fraud prevention, cybersecurity, compliance, customer support, and innovation.

It was added that banks and payment service providers ensure that consumers can use UPI without transaction fees.

Growth of UPI Transactions

In July, UPI processed 23.65 billion transactions worth 29.87 trillion rupees, compared to 20 billion transactions worth 24.85 trillion rupees in July 2025.

Reserve Bank of India Governor Sanjay Malhotra stated on Wednesday that discussions on the structure of a potential MDR are premature, and further investments are necessary to strengthen the real-time payment system. However, he also noted that someone must pay for the costs of operating India's digital payment infrastructure, and the cost of maintaining UPI payments cannot be ignored indefinitely.

Responding to questions about proposing an MDR rate on UPI payments over 2000 rupees, he stated that the central bank's focus remains on ensuring the accessibility, affordability, security, and sustainability of digital payments. Malhotra remarked: 'It is too early to say now. The government is still passing the amendment. Costs must be paid by someone. We all want this public infrastructure to continue strengthening. Let us wait and observe the further development of this issue.' He also added: 'Please keep in mind that ultimately someone pays, whether it is the consumer in some way, or the overall economy, and you do not see it directly.'