The financial year has begun as somewhat of a mixed bag for India’s unified payments interface, or UPI — and its scale means every transitional moment is amplified. The purging of inactive mobile numbers from UPI, is definitely a step towards safety. But the second outage in a week, this time late Wednesday night, something of a worry. Yet, as far as transitional moments go, we may be rushing towards another one.
An introduction (or re-introduction, for the justly pedantic
The financial year has begun as somewhat of a mixed bag for India’s unified payments interface, or UPI — and its scale means every transitional moment is amplified. The purging of inactive mobile numbers from UPI, is definitely a step towards safety. But the second outage in a week, this time late Wednesday night, something of a worry. Yet, as far as transitional moments go, we may be rushing towards another one.
An introduction (or re-introduction, for the justly pedantic readers) of MDR, or merchant discount rate, charges which will help banks and payment platforms earn a share from every UPI transaction. I mentioned scale earlier — and here are some numbers before I illustrate what this MDR transition may mean. UPI transaction volume reached 18.3 billion, according to the National Payments Corporation of India (NPCI), in March this year. That is a 13.6% increase from February 2025, which clocked 16.11 billion transactions. If you want an annual trajectory guidance — March 2024 clocked 13.44 billion transactions and February 2024 saw 12.10 billion transactions go through.
So far, UPI transactions (apart from the early years of 2016 to 2019; a no-MDR policy was implemented in 2020) have not had a charge or a share of each transaction, which would be an earning of banks, payment platforms or apps that enable UPI payments for us (the like of PhonePe, CRED and Paytm, to name a few). An amendment to the Payment and Settlement Systems Act, 2007, was aimed to accelerate the shift toward a cashless economy; a need of that hour. It’s helped make a case for RuPay credit and debit cards along the way.
Contrast this with the MasterCard or Visa networks that charges 1.15% to 2.5% per transaction, or Diners Club that keeps between 1.8% to 2.5% of each transaction and American Express that collects 1.43% to 3.3% per payment made using their cards.
Turns out, the zero-MDR model is now at a crossroads. There are now proposals being mulled, which may eventually be implemented in a tier-ed manner, so as to not take away the charm (and ease) of UPI from a large demographic of users. Among consideration is a 0.3% MDR on UPI transactions for merchants with an annual GST-linked turnover exceeding ₹40 lakh, while small merchants (those below this financial earnings threshold) may continue to enjoy zero charges.
For RuPay cards specifically, there may be need for an incentive to banks and payment platforms — the former in particular, so they actively sell RuPay cards over MasterCard and Visa alternatives.
I say again, these are all proposals. But one thing is clear, changes are coming.
I’ll illustrate this with a current landscape over at any of India’s top banks, and none of their premium credit card offerings are available on the RuPay network as yet. HDFC’s RuPay offerings top out with the Tata Neu Infinity HDFC Bank credit card, ICICI Bank’s Coral RuPay is their peak. If banks know there is a genuine revenue stream in play, RuPay cards will get closer to a level-playing field in the premium cards space too. That is where average user spends may be higher too — the benefit runs through the chain.
An MDR-driven revenue, one can assume that would be the case, enable banks and fintechs to invest in infrastructure, security, and innovation, ensuring UPI’s long-term viability. The current subsidy allocation—slashed from ₹3,500 crore in FY24 to ₹437 crore in FY25—likely falls short of covering costs. For how much longer can the government foot the bill?
There are of course negatives to setting a cat amongst the comfortable pigeons. After all, what’s more comfortable than free? The large merchants who come within the MDR ambit for UPI, may begin passing on this cost to consumers. That annoying scenario isn’t new — try booking a car (even with a token booking amount) at a dealership using a credit card; they’ll immediately tell you they will be adding around 2% charge extra for using a credit card (your choice, whether to grin and bear it, or be annoyed and still bear it). Why, you may wonder though? That’s to cover for the share of transaction MasterCard, Visa or American Express would come calling for. You pay for, what the dealership owes.
Merchant behaviour has never been ideal, and something will have to ensure this is curbed.
There will of course be resistance. A zero-MDR policy catalysed UPI’s rise to these heights; and it is undoubtedly a global benchmark for scale with digital payments. The MDR reintroduction proposals is a signal of pragmatism beginning to emerge — one that would enable players in the chain to grow. The key challenge will be to ensure momentum doesn’t slow. And as I mentioned earlier, merchants behave.
Vishal Mathur is the technology editor for HT. Tech Tonic is a weekly column that looks at the impact of personal technology on the way we live, and vice-versa. The views expressed are personal.
One Subscription.
Get 360° coverage—from daily headlines
to 100 year archives.
Archives
HT App & Website