The government proposed amending the Payment and Settlement Systems Act of 2007. That change reopens the door for Merchant Discount Rate (MDR) on UPI transactions after a six-year zero-fee regime. Fintechs and banks, eyeing infrastructure costs, quietly pushed for the move, claiming it slowed growth.
How We Got Here
UPI has operated under a zero-MDR mandate since 2018, which significantly boosted its widespread adoption across India. Section 10A of the PSSA 2007 currently bans banks and system providers from imposing any charge on specific electronic payments, including UPI.
The Numbers
- The proposed amendment is part of the "Taxation And Other Laws (Amendment) Bill, 2026."
- The new wording replaces a blanket prohibition with a clause allowing the Central Government to "specify" exempt modes via notification.
- Inc42 previously reported the government weighed a 0.07% MDR on transactions above ₹2,000 for businesses with ₹1.5 Cr+ annual turnover.
- Pine Labs CEO Amrish Rau stated investments in digital payment infrastructure jumped 300% in the last 12-24 months.
- Rau noted Brazil's PIX and China's real-time systems charge 30-40bps MDR and achieved over 90% digital penetration, while India stands at 35-40%.
What Happens Next
🇮🇳 Why This Matters for India
For the 1.5 crore small merchants in Tier-2 and Tier-3 cities relying on free UPI, even a 0.07% MDR on higher value transactions could impact daily cash flows and adoption.
The Take
The government will likely introduce a tiered MDR, starting with higher-value merchant transactions, rather than a blanket charge. This protects micro-merchants while giving banks and fintechs the revenue incentive they've lobbied for.
Source:
Inc42 ↗