The Finance Ministry confirmed UPI payments will remain free for consumers. This ends months of speculation, but opens the door for merchant discount rates (MDR) on larger business transactions. Payment processors like PhonePe and Razorpay have long pushed for MDR to fund infrastructure.
How We Got Here
The debate around UPI's funding model resurfaced after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026. This Bill amends the 2007 Payment and Settlement Systems Act, allowing the government to prescribe future MDR.
The Numbers
- P2P UPI transactions will also continue to remain free.
- Any future MDR would apply to a "limited set" of merchant transactions above a "specified threshold" at a "nominal rate."
- The proposed amendment is an "enabling provision," not an automatic introduction of charges.
- The stated goal is long-term sustainability, technological advancement, and expansion of UPI into rural and semi-urban areas.
What Happens Next
🇮🇳 Why This Matters for India
For SMB founders building payment integration tools in Hyderabad or e-commerce platforms in Pune, clarity on UPI's business transaction costs is crucial for product strategy and margin forecasting.
The Take
The immediate win is for consumers, but the longer game here is unlocking serious capital for UPI's next phase. This future MDR, however nominal, will shift infrastructure investment from government mandate to market incentive for payment players.
Source:
Inc42 ↗